Wells Fargo has turned more positive on Amazon (AMZN), pointing to an AI catalyst it believes could shift the company’s cloud trajectory.
In a new CNBC interview, Ken Gawrelski, Wells Fargo’s senior internet analyst, explains why the banking giant raised its AMZN rating to overweight and lifted its price target to $280 from $245.
According to Gawrelski, Amazon and Anthropic are working on a big project that will bear fruit next year.
“Anthropic has been a core, a key partner of Amazon.
Note that OpenAI, which has been a very big spender in cloud and the subject of a lot of the headlines you’ve no doubt reported about over the last three to four weeks, is more aligned with Microsoft and also does some work with Google, but really not with Amazon. So Amazon has not had that exposure. We do think Anthropic has great momentum as a business and also will be accelerating its compute spend. And notably, we think there will be a big project, big capacity project that the two are working on together that will benefit next year. We see it as a nice driver to AWS (Amazon Web Services) and an accelerant to the business.”
Gawrelski also says that the cloud business is growing faster than expected. While Amazon is losing market share, he expects the downtrend to bottom out this year.
“AWS will still be a market share loser in total cloud. But our view is that the total pie of cloud is much bigger than we had previously expected. We’ll grow probably at a 30% CAGR between 24 and 29. This is a massive industry.
Now, Amazon is losing share, but we expect Amazon share losses to peak this year and to improve thereafter. And, importantly, Amazon, which has kind of been stuck in the 17% high teens level, we expect acceleration in the next year. Hopefully, we’ll get a little bit of that 3Q and 4Q, where we see a couple of points of acceleration, but more meaningful acceleration to the kind of low 20s and maybe there’s an upside case to the mid-20s next year.”
Despite the bullish run of other tech firms, AMZN is down about 7% year-to-date, trading at $220.
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