Amazon faces capex risk as analysts weigh up $200B spending plan

Amazon.com Inc (NASDAQ:AMZN) shares fell much than 7% to astir $205 connected Friday pursuing the company’s 4th fourth net report, arsenic investors digested the $200 cardinal superior expenditure program and disappointing archetypal 4th borderline guidance.

While AWS and retail results impressed, analysts from Jefferies, Wedbush, and Bank of America warned that Amazon’s towering superior expenditures could support investors connected edge.

Jefferies highlighted the request for much tangible returns from Amazon’s spending. While AWS gross grew 24% twelvemonth implicit twelvemonth and backlog accrued astir 40%, the analysts wrote that these gains “paled versus capex maturation and peers, suggesting much enactment up to regain mindshare successful AI and summation assurance successful capex ROI.”

They noted that AWS’s sequential backlog maturation of $44 cardinal was smaller than Microsoft’s $233 cardinal and Google’s $85 billion, contempt Amazon having the highest gross base.

Jefferies maintained its ‘Buy’ rating, citing “depressed valuation, banal underperformance, and aboriginal signifier of AWS acceleration,” but added that investors volition privation to spot continued advancement successful AWS and AI metrics arsenic good arsenic much factual grounds of capex returns.

Wedbush analysts pointed to Amazon’s continued spot successful AWS and retail segments. The analysts wrote that Amazon reported “the strongest year-over-year maturation wrong AWS implicit the past 13 quarters (+23.6%), up of estimates by ~250bps, reflecting accrued capableness and encouraging request crossed AI and halfway services.”

They noted that AWS has doubled its capableness since 2022 and is connected gait to treble again by 2027.

While acknowledging that Amazon’s guidance for first-quarter operating income was beneath archetypal expectations, the analysts added that “the value of the planned level of walk is accordant with management’s longer-term positioning,” and cited aggregate levers for sustainable borderline improvement, including fulfillment optimization and a structural displacement toward higher-margin AWS and advertizing revenue.

Wedbush lowered its terms people to $300 pursuing the study but maintained an ‘Outperform’ rating.

Bank of America besides focused connected the implications of Amazon’s superior expenditure plans for aboriginal growth. The analysts noted that portion fourth-quarter gross and nett exceeded Street estimates, the first-quarter outlook and $200 cardinal capex usher “pressured stock, but we spot capableness needed to support Cloud leadership.”

They highlighted that AWS gross maturation of 24% was supra expectations and connected a affirmative gross revision cycle, but warned that investments volition proceed to measurement connected margins successful the adjacent term.

The steadfast reiterated its ‘Buy’ standing with a $275 terms objective, emphasizing that “while the capableness ramp volition adhd borderline volatility successful aboriginal quarters, we deliberation this capableness volition beryllium afloat utilized arsenic portion of the AI concern translation crossed industries.”