Analysts on Wall Street have given Amazon (AMZN) stock a forecast upgrade; however, its battle in the AI space could put some resistance on its performance. Amid the ever-challenging AI race, several top companies in the US are throwing their hat in the ring, splurging billions on developing AI data centers and other artificial intelligence innovations. Although Amazon is one of the largest investors, the increased competition is a concern for AMZN shares, per numerous analysts.
Amazon Web Services has the biggest market share in the AI realm, followed by Microsoft’s Azure and Alphabet Inc.’s Google Cloud Platform. However, Oracle and CoreWeave’s huge growth recently suggests there’s a fourth and fifth major player in the field. Unlike those players, shares in Amazon (AMZN) have been down in the past month. In comparison, Alphabet shares are trading for 22 times forward earnings, a modest premium to the company’s long-term average. Although that’s less than Amazon’s multiple, the gap used to be much wider. Amazon shares dipped 0.6% on Thursday while Alphabet gained 0.1% and Oracle gained 1.7%. Microsoft was little changed.
Why is Amazon (AMZN) Down in the Last Month?
Amazon’s recent dip comes amid fears of the company failing to meet the lofty expectations it set for itself. Amazon plans to spend up to $100 billion on AI this year. With guidance for the current quarter of $15.5 billion to $20.5 billion in operating income, the midpoint is less than Wall Street’s estimate of $19.5 billion. There’s a growing concern that AI investments may not be paying off for companies, and Amazon has been one of the biggest spenders in the US on the surging industry.
Furthermore, some analysts on Wall Street echo this concern, while others are split. “Q2 provided the first warning signal that AWS is falling behind Azure when it comes to winning AI work flows, but they are falling behind Oracle and CoreWeave to an even greater extent,” said Clare Pleydell-Bouverie, co-manager of the Liontrust Global Innovation Team in London. Meanwhile, Of the 71 analysts polled by FactSet, 68 rate Amazon stock a Buy or equivalent, with an average price target of $264. “While share losses remain material, we take solace in stronger industry growth and rising AWS estimates,” wrote Wells Fargo’s Ken Gawrelski. Most on Wall Street agree with Wells Fargo’s assessment.
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Overall, Amazon stock is trading roughly flat for the year. Shares have been hovering just above Amazon’s 200-day moving average for the past several trading days. Amazon has not traded below that long-term investor support level since early May.