Amazon Web Services strength surprises Wall Street

Amazon (NASDAQ:AMZN) shares skidded more than 9% on Friday as worries about consumer spending have cropped up. And while much of the attention is focused on the health of the consumer, there was one area that was a pleasant surprise to investors:

Amazon Web Services.

AWS grew 19% during the second-quarter, accounting for $26.3B in revenue, well above the Wall Street consensus of 17.6%. That re-acceleration after last year’s headwinds could be a boost for the tech giant, RBC analysts said.

In addition, with the artificial intelligence chips likely coming into a better supply balance and the narrative about Amazon’s AI prowess improving, the bull case is “largely on track,” the investment firm said. It maintained its Outperform rating and $215 price target on Amazon.

JMP Securities also maintained its market Outperform rating on the back of AWS-related strength. Customers are still migrating to the cloud from on-premise and Amazon’s investments in AI and infrastructure to help support AWS demand are paying off, the investment firm said.

JMP also upped its price target to $245 from $225 following the results.

Bank of America analyst Justin Post said that AWS is likely to drive margin expansion for the rest of 2024, as he now expects the segment to have 35.5% margins at the end of 2024, up from 34.1%.

“Amazon remains our top large cap stock given AWS acceleration and AI opportunity,” Post wrote in an investor note. Post reiterated his Buy rating but lowered his price target to $210 from $220 on a lower sum-of-the-parts valuation.