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On Friday, Pivotal Research Group reiterated its Buy rating on Amazon.com (NASDAQ:AMZN) shares, maintaining a $260.00 price target. The firm’s analysis forecasts robust growth for the e-commerce giant, projecting over 11% revenue compound annual growth rate (CAGR) over the next five years. This aligns with Amazon’s current performance, as InvestingPro data shows the company achieved 11.93% revenue growth over the last twelve months, with a market capitalization of $2.51 trillion. This optimistic outlook is underpinned by a 25+% CAGR in Amazon Web Services (AWS) and a 7% increase in other business segments.
The anticipated growth is attributed to several factors, including Amazon’s ability to maintain market share in the rapidly expanding cloud computing industry, which is expected to grow at a 25+% 5-year CAGR. The research suggests that Amazon will benefit from an increasing workload share and AI enhancements, alongside improving cloud operating margins, which are projected to rise from 37% in 2024 to 44% by 2029. InvestingPro analysis indicates Amazon maintains a "GREAT" overall financial health score of 3.16, with strong cash flows that can sufficiently cover its moderate debt levels.
Additionally, Pivotal Research predicts that global e-commerce (excluding China) will grow at a 10% CAGR, with Amazon likely to capture a larger market share by venturing into new retail categories such as pharmacy and groceries, as well as through international expansion. The firm anticipates that Amazon will achieve margin expansion by leveraging scale, AI, and robotics.
The analysis also points to the potential for significant growth in advertising revenue. Amazon, already holding the position of the third-highest ad revenue globally, is expected to increase its market share in search advertising, enhance ad loads, and introduce advertising to Prime Video.
The report highlights that Amazon’s retail and fulfillment scale, combined with AI and robotics benefits, should enable competitive pricing and profitability on everyday items, driving substantial revenue and EBITDA growth. Furthermore, while challenging to predict, Pivotal Research expects Amazon to leverage its market position to successfully launch new business ventures.
Overall, the firm anticipates these factors, especially the increasing share of high-margin cloud computing revenue and advertising services, to drive significant operating margin expansion. Amazon’s operating margin is expected to grow from 11% in 2024 to approximately 20% by 2029. According to InvestingPro, the stock is trading near its 52-week high with a strong return of 46.73% over the past six months, reflecting investor confidence in the company’s growth trajectory. For deeper insights into Amazon’s valuation and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Amazon has been the focus of various analyst firms following its Q4 results. Canaccord Genuity maintained a Buy rating on Amazon and increased the price target to $280 from $265, noting that both Online and Physical Stores revenue surpassed expectations. Similarly, DA Davidson analysts also increased their price target for Amazon to $280, highlighting the impressive performance of Amazon’s Retail sector and the robust expansion of Amazon Web Services (AWS). Piper Sandler, on the other hand, increased the price target to $265 from $225, despite the company providing weaker guidance for the future.
In terms of partnerships, Amazon Web Services (AWS) and Bouygues (EPA:BOUY), a diversified services group, have announced a strategic partnership aimed at speeding up digital transformation across Bouygues’ operations. They plan to utilize artificial intelligence (AI) to enhance operations and launch innovative services.
Finally, Amazon is preparing to launch its highly anticipated Alexa generative artificial intelligence (AI) voice service, marking the most significant update to the product since its inception. The revamped AI service will have the capability to respond to multiple prompts in a sequence, potentially functioning as an "agent" for users by performing tasks for them without their direct input. These are among the recent developments involving Amazon.
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