Amazon (AMZN) is making waves in the stock market, and analysts are buzzing with optimistic forecasts. Two recent reports highlight key factors driving Amazon's potential for significant growth, despite some cost-related challenges. Let's dive into what's fueling the bullish sentiment.
Amazon's Secret Advantages: A Triple Threat
JPMorgan analyst Doug Anmuth identifies three key, often overlooked, advantages that could propel Amazon's stock even higher: regionalized logistics, robotics innovation, and a growing push into logistics as a service (LaaS).
1. Regionalized Logistics: Speed and Efficiency
Amazon has been strategically restructuring its fulfillment network, moving from a national model to a regional one. This means orders are now more likely to be fulfilled from nearby warehouses, significantly reducing shipping distances and costs. In 2024, this strategy helped Amazon deliver over 9 billion same-day or next-day packages. The numbers speak for themselves: unit growth rose 8% year-over-year in Q1, while shipping costs only increased by 3%.
Amazon plans to double its network of same-day fulfillment facilities, which are the least expensive buildings in its real estate portfolio. This expansion could further slash delivery costs. While there are currently about 600 small-package US delivery stations, the goal is to reach as many as 1,000.
2. Robotics Innovation: Automation Power
Advancements in AI and automation are another crucial factor. Amazon has been heavily investing in robotics to streamline its operations, increase efficiency, and reduce labor costs. This investment translates to faster processing times, reduced errors, and improved overall productivity within its fulfillment centers. The exact details of these robotic systems are closely guarded, reflecting their competitive advantage.
3. Logistics as a Service (LaaS): A New Revenue Stream
Amazon is increasingly offering its logistics infrastructure and expertise to other companies, creating a new revenue stream. This allows businesses to leverage Amazon's advanced fulfillment network without having to build their own from scratch. As e-commerce continues to grow, the demand for reliable and efficient logistics solutions will only increase, making LaaS a potentially lucrative market for Amazon.
JPMorgan reiterated its Overweight rating for Amazon stock and set a December 2025 price target of $240 per share, implying a potential upside of over 20% from current levels.
Analyst Bullish Despite AWS Cost Pressures
MoffettNathanson analyst Michael Morton also sees significant upside for Amazon, even with rising costs in its Amazon Web Services (AWS) cloud unit. Morton raised his price target on the stock from $250 to $253 while maintaining a Buy rating, suggesting approximately 19% potential upside.
Morton believes that Amazon is well-positioned to beat profit estimates in both 2025 and 2026, even as cost pressures rise within AWS. He notes that while Amazon is well-known for its shopping business, its real profits come from AWS and advertising.
AWS Investments and Depreciation Costs
Following Amazon’s latest quarterly breakdown on segment-level depreciation, Morton updated his AWS forecast. He expects Amazon to spend approximately “$200 billion from FY24 to FY26” to expand AWS, mainly on servers and network equipment. These assets depreciate rapidly, causing AWS depreciation costs to rise from “13% in Q424 to 23% in Q426,” potentially lowering AWS profit margins by about 10 percentage points.
Strong Outlook Despite Margin Pressure
Even with the anticipated margin pressure, Morton remains optimistic about Amazon’s outlook. He sees the next 18 months as strong, particularly for AWS margins in 2025. He expects Amazon to beat profit estimates in both 2025 and 2026, supported by strong demand, improved cost efficiency, and continued growth in its high-margin advertising business.
The Bottom Line
Amazon's stock is showing strong momentum, driven by a combination of strategic advantages and robust performance in key business segments. While cost pressures in AWS are a factor to consider, analysts like Morton believe that Amazon is well-positioned to overcome these challenges and deliver strong earnings growth in the coming years. Investors are watching closely as Amazon continues to innovate and expand its reach across various industries.