Baird analysts slightly raised their price target on Amazon (NASDAQ:) stock from $210 to $213 on Thursday after revisiting the margin outlook for the e-commerce and cloud giant.
The investment firm believes that Amazon Web Services (AWS) margins could shrink later this year and into 2025.
“Our view is that AWS segment margins will return to around 30% (or even lower) due to higher operating costs to support new data centers and infrastructure, an increasing mix of lower-margin GenAI workloads and likely a resumption of production. net headcount growth,” analysts said in a note.
“We don’t believe GenAI workloads are still incremental to revenue overall, and model a mid to high teens AWS revenue CAGR from 2024-2027,” she added.
Baird also expects North American retail margins, excluding advertising, to return to low single digits over the next two years, with International Retail achieving sustainable profitability within the next two to three years.
On the other hand, advertising is expected to remain a strong margin tailwind. Based on these revised assumptions, the analysts are increasing their consolidated operating margin and earnings estimates for 2025 and 2026 above consensus, without changing revenue forecasts.
