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On Monday, Bernstein analysts maintained their outlook on both Amazon (NASDAQ:AMZN) Web Services (AWS) and Datadog (NASDAQ:DDOG), despite recent concerns stemming from weaker performances by competitors Google (NASDAQ:GOOGL) Cloud and Azure. Bernstein highlighted that AWS’s fourth-quarter revenue growth met expectations, but investor confidence was shaken by management’s comments on an uneven growth trajectory for 2025. AWS, like its peers, is currently limited by AI capacity constraints, which are not expected to ease until the second half of 2025. The cloud sector continues to show resilience, as evidenced by strong performance metrics from leading technology companies tracked by InvestingPro, with many maintaining impressive gross profit margins above 75%.
The analysts noted that AWS’s growth could decelerate in the first quarter of 2025, with a potential year-over-year revenue growth floor of 15.5%. They observed that AI has been contributing significantly to AWS’s revenues, estimating an incremental year-over-year growth of approximately $400-500 million each quarter. However, the first quarter of 2025 presents challenges due to tough comparisons from the previous leap year and only a half quarter of IPv4 contribution.
Despite these headwinds, Bernstein suggested that AWS could benefit from increased spot prices due to capacity constraints across all hyperscalers and rising demand. In early February, some H100 consumption prices more than doubled compared to the end of December. If this trend continues, the price-led AI contribution could reach close to $3 billion. Looking at broader market trends through InvestingPro’s comprehensive analysis, tech companies in the cloud and AI space have shown remarkable YTD returns, with many posting gains above 20%. Get access to detailed financial health scores and over 30 key metrics for Amazon and other tech leaders with an InvestingPro subscription.
The report also discussed the implications for Datadog and other consumption infrastructure companies. The correlation between AWS and Datadog indicates that if AWS experiences SSO weakness, it could impact Datadog’s first-quarter performance. The analysts had previously adjusted their model for Datadog a couple of weeks ago, taking into account the potential for lower demand for applications going into production.
Regarding Amazon, Bernstein acknowledged that the company had a strong fourth quarter, with North America operating margins impressively rising to 8%, and AWS margins remaining robust. However, the tepid first-quarter guidance and questions around AWS’s growth trajectory may lead to Amazon’s stock trading sideways as investors adjust to the new data.
In terms of Datadog, Bernstein awaits management’s discussion on expected demand in the first quarter and is monitoring customer behavior in response to higher inference prices. The firm maintains its Outperform rating and $151 price target for Datadog, with no changes to their model following their recent update and Cloudflare (NYSE:NET)’s earnings, which provided a reference point for expectations.
Overall, Bernstein rates Amazon as Outperform with a price target of $275, expecting AWS’s growth to slow down in the first and second quarters of 2025 due to supply constraints, before reaccelerating in the second half of the year as those constraints ease. They anticipate that AWS margins will remain strong throughout the year. For deeper insights into Amazon’s valuation and growth prospects, InvestingPro offers exclusive access to professional-grade research reports, comprehensive financial metrics, and expert analysis covering over 1,400 US stocks, helping investors make more informed decisions in the dynamic tech sector.
In other recent news, Okta (NASDAQ:OKTA) has seen significant developments. The identity management solutions provider announced the appointment of Eric Kelleher as the new President and Chief Operating Officer, succeeding Eugenio Pace, who is set to retire in March 2025. Kelleher, who has been instrumental in Okta’s revenue growth, will oversee various teams to drive growth and enhance operational efficiency.
Meanwhile, Okta also announced a 3% workforce reduction as part of a restructuring plan aimed at supporting growth-oriented priorities. The company expects to recognize about $11 million in restructuring charges in the fourth quarter of fiscal 2025, primarily for employee severance and benefits. Despite these changes, Okta reaffirmed its financial guidance for the fourth quarter and full fiscal year 2025.
On the analyst front, Jefferies maintained a Hold rating on Okta with a steady price target of $90.00. Similarly, KeyBanc Capital Markets upgraded Okta from Sector Weight to Overweight, setting a new price target of $115.00, citing the company’s prospects within the security sector. Baird also increased its price target on Okta shares to $115, retaining an Outperform rating on the stock, and positioned Okta as one of its top small to mid-cap investment ideas for the upcoming year.
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