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Investing.com -- Goldman Sachs reiterated Amazon.com as a top pick ahead of third-quarter earnings, saying that investors are underestimating the growth and profit potential of its cloud computing unit, Amazon Web Services (AWS).
There are investor concerns that AWS is losing ground to rivals such as Microsoft Azure and Oracle’s cloud division as competition for AI-related workloads intensifies.
AWS’ share of public cloud revenue has slipped to about 45% from more than 50% last year.
However, the Goldman Sachs said the market is overlooking AWS’ backlog of contracted revenue, easing supply constraints on AI infrastructure and the contribution from AI services including its partnership with Anthropic.
“While investor focus has shifted toward debates around AWS in recent months, we highlight AMZN’s Advertising business that is increasingly well positioned in the broader advertising landscape, leading to consistent compounding potential & high profit contribution,” GS analysts said.
It sees a pathway for AWS to return to more than 20% revenue growth and sustain low-to-mid-30% operating margins through late 2025 and 2026.
Goldman said Amazon’s advertising unit is also an “increasingly important” profit driver, forecasting compound annual revenue growth of about 16% through 2028 as ads expand across shopping, streaming and other media formats.
The brokerage raised its price target on Amazon shares to $275 from $240 and said the stock offers a roughly 3-to-1 upside skew from current levels.
“Looking over a multi-year time frame, we believe that Amazon will compound a mix of solid revenue trajectory with expanding margins supported by the growing yield/return of prior investments.”