Amazon stock has 17% upside as earnings reveal a 'new era' of profits for the tech titan, Bank of America says
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- Bank of America boosted Amazon's price target after earnings to $210, eyeing 17% upside from Wednesday's price levels.
- The confidence was largely driven by accelerating growth of AWS and increased retail margins.
- Amazon's Q2 guidance slightly fell short of Wall Street's expectations, but Bofa still sees upside ahead.
Amazon stock could soar as its latest earnings herald a "new era" of profits for the tech behemoth, according to Bank of America.
Bank of America analysts bumped up their price target for Amazon shares to $210 from $204, marking a 17% jump from Wednesday afternoon prices around $178, thanks to the tech giant's estimate-beating earnings in the first quarter.
In a note sent to clients on Wednesday, Bofa's global research team led by Justin Post highlighted a major positive sign from the CEO's earnings call: Margins can continue to expand despite the company ramping up its investment.
Analysts said "a new era for retail profitability" could be dawning for Amazon.
The bank said they remain optimistic about the two key stock drivers for the company: accelerating AWS growth that's outperformed peers, and the potential higher retail profit margins as Amazon expands. The two factors made Amazon the top large-cap pick for Bofa.
The AI-fueled AWS racked up $25 billion in sales, leading BofA to forecast an 18% year-over-year revenue growth in the segment for 2024, up from the previous 16.5%. Analysts note that recent launches of new models within AWS Bedrock are set to drive future demand.
On the guidance front, Amazon expects Q2 net sales to range between $144.0 billion and $149.0 billion, 2.5% below the estimated $150.21 billion.
But Bofa still sees upside ahead, as roughly 120 basis points of this slowdown is due to the leap year benefit in the first quarter and 50 basis points due to a stronger foreign exchange headwind.
"2Q profit guide at $10-14bn bracketed Street at $12.5bn, suggesting strong 9% margins at high-end," they wrote.
Looking ahead to 2025, BofA has revised the profit and EPS estimates to $75 billion and $5.65, respectively, up from the previous estimates of $71 billion and $5.28.
"This implies a P/E of 31x using AH price of $177, though we expect Street to assume more margin beats and upside vs Amazon's guidance."