Amazon: Don’t underestimate AWS’s growth story, analyst says

Investors may be concerned about Amazon (AMZN) faced several headwinds in 2H21. Difficult assemblies, reopenings and supply chain/transport restrictions are all things to consider, as noted by Baird analyst Colin Sebastian.

However, after last week’s AWS Summit Online conference, the analyst believes investors should pay more attention to Amazon’s cloud business.

“AWS trends remain positive with accelerating growth, healthy margin contributions and increasing urgency among enterprises to adopt ‘digital transformation’,” said the 5-star analyst.

Cloud-based services are the backbone of this digital transformation and are no longer thought of as “commodity” compute/storage, but are “becoming synonymous with facilitating innovation, reducing the time it takes to complete complex computing projects and lowering overall technology infrastructure and operation costs.”

Amazon is of course a leader in the field, its “unique innovation culture” sets it apart from the rest. Notably, AWS is generating “strong traction” through database migration, with the company now boasting more than 450,000 database customers. There is also increasing adoption of AI/ML services, an area where AWS now has more than 100,000 ML customers.

Cloud adoption is also a long way from reaching saturation point. Research firm Gartner estimates that while 10% of enterprises are currently planning data center closures, this figure should rise to 80% by 2025. A combination of “broad cloud services, powerful custom processors, and global infrastructure” make AWS one of the premier ports of call for businesses “of all sizes.”

From a cost point of view, the benefits are also all in one direction. Sebastian highlights a Baird survey of cloud customers that suggested $1 spent on cloud $2-3 was “not spent” on technology cap-ex and op-ex. Customers moving to AWS were also able to reduce total IT infrastructure costs by 19% with a 27% decrease in spend per user; In addition, cost savings ‘accelerate’ as companies scale.

Overall, Sebastian rates Amazon as an outperform (i.e. buy), along with a price target of $4,000. The consequences for investors? Upward of ~16%. (To view Sebastian’s track record, click here)

Anticipated headwind or not, no Street analyst is betting on Amazon’s continued success. All 30 registered reviews are positive, which of course culminates in the Strong Buy consensus rating of the stock. The forecast calls for a 12-month return of 22% as the average price target is currently $4,214.13. (View Amazon Stock Analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.