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Amazon: Don’t Underestimate the AWS Growth Story, Says Analyst

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Investors might be concerned with Amazon (AMZN) facing several headwinds in 2H21. Tough comps, re-openings, and supply chain/transportation constraints are all issues to consider as noted by Baird analyst Colin Sebastian.

However, following last week’s AWS Summit Online conference, the analyst believes investors should be paying more attention to Amazon’s cloud business.

“AWS trends remain positive with accelerating growth, healthy margin contributions, and increasing urgency among enterprises to adopt ‘digital transformation,’” the 5-star analyst said.

Cloud-based services are the backbone of this digital transformation and are no longer viewed as “commodity” compute capacity/storage, but are “increasingly synonymous with facilitating innovation, reducing the time needed to complete complex computing projects, and lowering overall technology infrastructure and operating costs.”

Amazon naturally is a leader in the field, its “unique culture of innovation” separating it from the pack. Of note is the fact AWS is generating “strong traction” from database migration, with the company now boasting more than 450,000 database customers. There is also increasing adoption of AI/ML services, an area in which AWS now counts over 100,000 ML customers.

Cloud adoption is also still a way off reaching saturation point. Research company Gartner estimates that while 10% of enterprises are planning data center closures at present, this figure should jump to as high as 80% by 2025. A combination of “broad cloud services, powerful custom processors, and a global infrastructure” make AWS among the first ports of call to companies “of any size.”

From a cost perspective, the benefits are also all in one direction. Sebastian highlights a Baird survey of cloud customers which suggested that $1 spent on cloud was $2-3 “not spent” on technology cap-ex and op-ex. Customers moving over to AWS were also able to cut overall IT infrastructure costs by 19% with a 27% drop in spending per user; What’s more, as businesses scale, the cost savings “accelerate.”

Overall, Sebastian rates Amazon an Outperform (i.e. Buy) along with a $4,000 price target. The implication for investors? Upside of ~16%. (To watch Sebastian’s track record, click here)

Anticipated headwinds or not, no Street analysts are betting against Amazon’s continued success. All 30 reviews on record are positive, naturally culminating in the stock’s Strong Buy consensus rating. The forecast calls for 12-month returns of 22%, given the average price target currently stands at $4,214.13. (See Amazon stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.