Amazon stock appears to be stuck in the mud, partly because investors fear its cloud business is losing ground against competitors like Microsoft. But analysts with Wells Fargo expect that the tech behemoth's profit-driving Amazon Web Services will soon see a boost from generative AI.
Wells Fargo analyst Ken Gawrelski on Wednesday upgraded his view on Amazon stock to overweight, or buy, from a previous equal-weight. In a note to clients, Gawrelski pointed to "increased conviction in AWS revenue acceleration following (a) detailed Anthropic contribution and cloud market analysis."
Anthropic is the developer of the chatbot Claude, which competes against OpenAI's ChatGPT, and Alphabet's Gemini. Amazon announced a $4 billion investment into Anthropic in September 2023, which the company doubled with an additional funding round last November.
Amazon is building an AI supercomputer in collaboration with Anthropic, called Project Rainer. That project, along with general data center capacity additions, will "drive AWS revenue growth acceleration through 2026," Gawrelski wrote.
Gawrelski forecasts that Amazon's AWS revenue will grow 22% year over year in 2026, compared to a Wall Street consensus for 18%.
Wells Fargo downgraded Amazon last October, citing concerns that investments into its Project Kuiper satellite internet service would weigh on retail profitability.
But Gawrelski wrote Wednesday that "Amazon Retail revenue and margin growth trends remain healthy, despite Project Kuiper investments and FBA (Fulfilled by Amazon) fee pressure." He set a price target of 280 for Amazon stock.
Amazon Stock Lags Magnificent Seven
Amazon stock traded flat to close at 220.21 on the stock market today.
The tech giant's shares have advanced less than 1% year to date. That's the worst performance among tech giants in the Magnificent Seven.
Shares were weighed down earlier this year by concerns about the effect of tariffs on Amazon's huge e-commerce business. But the biggest concern of late for investors is Amazon's positioning against cloud-computing rivals Microsoft, Google parent Alphabet and a surging Oracle
Amazon stock tumbled 8% following its Q2 report in late July. The results showed Amazon's cloud revenue growth accelerated only slightly in Q2, a letdown for investors compared with stronger performances from cloud rivals Microsoft and Google.
Wall Street took Amazon's performance as a sign that its market-leading cloud business was losing ground as AI dominates the cloud infrastructure market. But Gawrelski wrote Wednesday that he expects AWS share losses will peak this year before stronger performance in 2026.
"We view AWS revenue acceleration as the key to the reversal of share underperformance year-to-date," the Wells Fargo analyst wrote.
