On Wednesday, JPMorgan (NYSE:JPM) updated its outlook on Amazon.com Inc (NASDAQ:AMZN), raising the stock price target to $240 from the previous $225, while reiterating an Overweight rating on the stock. The firm expressed increased confidence in Amazon's investment potential both in the short and long term, citing the company's strong first-quarter performance.
Amazon's first-quarter results showcased significant operating income upside, attributed to its Amazon Web Services (AWS) and International segments. AWS revenue growth notably accelerated to 17 percent.
JPMorgan highlighted Amazon's transition beyond alternating phases of heavy investments and profitability. The company, with its substantial scale in profit dollars and free cash flow (FCF), is positioned to simultaneously invest and expand operating margins.
The firm anticipates a substantial 35 percent increase in capital expenditures to $65 billion for the current year. Despite this, JPMorgan predicts there is ample opportunity for profitability improvements.
The increased capital intensity, primarily within AWS, is seen as a response to the growing demand for cloud services and GenAI, with Amazon having a solid track record for monetizing infrastructure investments.
Some market skepticism was noted, reflected in the stock's flat after-market activity. Concerns include the potential for rising capital expenditures to limit profit growth, a slightly conservative second-quarter revenue outlook, and the absence of updates on capital returns, which are not expected until late 2024 or 2025.
JPMorgan has adjusted its financial projections for Amazon, with a slight 1 percent decrease in 2024 and 2025 revenue forecasts. Still, operating income estimates have increased by 14 percent and 10 percent, respectively, and FCF projections have risen by 8 percent and 7 percent.
The firm projects a three-year FCF compound annual growth rate (CAGR) of 43 percent from 2023 to 2026. The revised stock price target is based on approximately 28 times the firm's estimated 2025 FCF of $86 billion, equating to about 21 times the estimated 2026 FCF of $108 billion.
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