Analysts say AWS, ad trends could boost Amazon stock value

Key conclusions

Jefferies analysts write that Amazon’s stock should continue to rise this year as the company expands new revenue streams, such as advertising and AWS, and as it cuts costs in its retail operations.
Amazon shares are up more than 30% this year, and Jefferies analysts are forecasting growth of at least another 18%.
Analysts write that Prime Video advertising alone could generate almost $3 billion in fiscal 2024, the first year of its existence.

Jefferies analysts write that the expansion of two Amazon (AMZN) units could boost the company’s revenue, profit margins and share price as it expands beyond its dominant position in e-commerce.

The analysts wrote in a note Monday that the company’s bets on Amazon Web Services (AWS) and advertising should provide higher-margin revenue streams as they grow and the company moves to improve profitability of its retail operations. They maintained a “buy” rating on the stock, raising their price target to $235 from $225.

Analysts say AWS, ad firms provide runway for stocks

The $235 price target would imply an upside of about 18% from Amazon’s share price late Tuesday, which was just under $200. Jefferies analysts say they see a bullish case for shares rising more than 40% to $285 if AWS and advertising revenue grows faster than expected. Amazon shares are up more than 30% this year after closing 2023 at $151.94.

“The two businesses with the highest operating margins are coming to the forefront, contributing to the growth of profitability and enterprise value (EV) of the entire company,” the analysts wrote.

AWS has been a strong source of growth for Amazon recently, with revenue in the segment rising 17% year over year to $25 billion in the company’s most recently completed quarter. CEO Andy Jassy wrote in a letter to shareholders earlier this year that the company sees growth potential across all of its businesses, and said during its April earnings conference call that AWS is growing as the cloud storage industry continues to evolve, as it connects to the world of generative AI.

Advertisements first appeared on Amazon Prime Video earlier this year. Analysts at Jefferies said the ad business could generate nearly $3 billion in new sales for Amazon in fiscal 2024, along with hundreds of millions of dollars from consumers who pay extra to avoid watching ads.