Baird analysts slightly lifted their price target from $210 to $213 on Amazon (NASDAQ:AMZN) shares Thursday after revisiting the margin outlook for the e-commerce and cloud giant.
The investment firm believes that Amazon Web Services (AWS) margins may contract later this year and into 2025.
“Our view is that AWS segment margins will return to roughly 30% (or even below) as a result of higher levels of operating expenses to support new data centers and infrastructure, increasing mix of lower-margin GenAI workloads, and presumably a resumption of net headcount additions,” analysts said in a note.
“We don't believe GenAI workloads are generally incremental to revenues as yet, and are modeling mid-to-high teens percent AWS revenue CAGR from 2024-2027,” they added.
Baird also anticipates that North American Retail margins, excluding advertising, will return to low single-digit percentage levels over the next two years, with International Retail achieving sustained profitability within the next 2-3 years.
Advertising, on the other hand, is projected 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 altering revenue projections.