In a recent discussion during the CNBC Investing Club’s Morning Meeting, Jim Cramer emphasized that Amazon’s stock find itself stagnant primarily due to the underperformance of Amazon Web Services (AWS). Cramer expressed his concerns directly to CEO Andrew Jassy, urging for a strategic acceleration of AWS, particularly as competition from Microsoft’s Azure intensifies.
Azure stands as the second-largest cloud unit after AWS, followed by Google Cloud. Cramer highlighted that although AWS has recorded year-over-year revenue growth, this increase is not keeping pace with its competitors, notably Azure, which announced a 39% growth, and Google Cloud, which increased by 32%. AWS’s growth of 17.5% marked the second consecutive quarter of deceleration, prompting fears that Amazon might be lagging in the critical generative AI sector.
Jeff Marks, director of portfolio analysis for the Club, underscored the need for Amazon to adopt a more aggressive strategy in AI developments. “The stock has just been stuck,” he remarked, aligning with Cramer’s sentiments about the necessity of a turnaround in AWS performance.
Despite the struggles, there is some progress in AWS’s landscape. Recently, Wells Fargo adopted a bullish stance on AWS growth, upgrading Amazon’s stock from an equal weight hold to an overweight buy. This analyst optimism led to an increase in the price target for Amazon shares from $245 to $280, suggesting a potential upside of 27% based on the current market price of $220.
This positive outlook from Wells Fargo can be attributed to Amazon’s ambitious AI project known as Project Rainier, developed in partnership with AI start-up Anthropic, responsible for the Claude chatbot. The project aims to bolster AWS’s capacity, enabling it to meet growing demands from both consumers and enterprises, subsequently driving additional revenue.
Wells Fargo anticipates that Anthropic’s contributions will enhance AWS growth significantly, projecting an increase from 3 to 7 percentage points by 2026. While this development is promising, it emphasizes the urgent need for AWS to display tangible results, especially since investor patience is running thin.
In the interim, Amazon is exploring other initiatives, including grocery expansion and attempting to reduce its cost-to-serve. However, analysts suggest that these actions may not be sufficient to provoke substantial stock movement without a marked improvement in AWS growth.
The investment community continues to maintain a cautious optimism regarding Amazon, with a buy-equivalent rating and a price target of $250 for the stock. As discussions regarding Amazon’s performance persist, the necessity for noticeable advancements in AWS remains a focal point for both investors and analysts alike.
