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Amazon's Cloud Business Set for Robust Growth, Says Redburn
Redburn's Positive Outlook on Amazon
Redburn, a boutique equity research firm, predicts a bright future for Amazon as the tech giant's cloud business, Amazon Web Services (AWS), is poised for a resurgence in revenue growth. Analyst Alex Haissl has maintained his buy recommendation on Amazon's stock and has increased his price target from $220 to $230. This new price target suggests a potential upside of approximately 66% from the stock's closing price last Thursday.
Reacceleration of AWS's Growth
Haissl has cited the potential for AWS, Amazon's cloud computing business, to experience a reacceleration in growth following a recent slowdown. "The deceleration has concluded, and the emphasis now shifts to the reacceleration. Contrary to the general consensus, we project that AWS will experience a more robust reacceleration, exceeding both 2021 levels and market forecasts," Haissl wrote in a note.
AWS's Leading Market Position
AWS holds a leading market position in areas such as databases, data warehouses, data lakes, and machine learning, according to Haissl. He believes that AWS is well-positioned to withstand AI-related challenges that are currently impacting the broader sector, given the crucial role of data preparation services before deploying artificial intelligence.
Robust Revenue Growth for AWS
In the second quarter, AWS reported a 12% growth, surpassing analysts' forecast by 200 basis points. AWS's revenue remained steady at $21.4 billion in the fourth quarter of 2022 and the first quarter of 2023, but it increased to $22.1 billion in the April-June period. Haissl anticipates AWS's revenue to grow by more than 20% and 30% in the third and fourth quarters of this year, respectively.
AWS's Significant Contribution to Amazon's Operating Profit
Haissl pointed out that AWS's growth has stabilized and even shown a slight acceleration in the second quarter of 2023, despite limited AI contributions at the moment. AWS's addition of $0.8 billion in sequential revenues in the second quarter of 2023 confirms management's commentary of a shifting balance between optimization and new workloads. AWS contributed 70% of Amazon's $7.7 billion operating profit in the second quarter, leading the cloud infrastructure market with a 40% share in 2022, according to previous data from technology industry researcher Gartner.
Amazon Shares' Strong Performance in 2023
Amazon shares have performed exceptionally well in 2023, rallying nearly 65%. This strong performance, coupled with the positive outlook for AWS, underscores the robust health of the tech giant and its potential for continued growth.
Conclusion: The Impact on New Businesses
The resurgence in Amazon's cloud business, as predicted by Redburn, has significant implications for new businesses. Given the robust growth of Amazon Web Services (AWS), new businesses, particularly those in the tech industry, may want to consider leveraging AWS's offerings to optimize their operations and stay competitive.
Opportunities in Cloud Services
AWS's leading market position in databases, data warehouses, data lakes, and machine learning presents opportunities for new businesses to tap into these resources. With AWS's growth expected to reaccelerate, businesses can benefit from the platform's expanding capabilities and services.
Investment Considerations
Redburn's positive outlook on Amazon's stock suggests potential investment opportunities for businesses and individuals alike. The predicted 66% upside presents a promising prospect for those considering investing in tech stocks.
Lessons in Business Resilience
Amazon's ability to bounce back from a slowdown in its cloud business serves as a valuable lesson in resilience for new businesses. It underscores the importance of continually innovating and adapting to changing market conditions to drive growth.
Final Thoughts
In conclusion, the anticipated robust growth of AWS and the strong performance of Amazon shares highlight the tech giant's ongoing dominance. New businesses can draw insights from Amazon's strategies and success to navigate their own growth trajectories.
Article First Published at: https://www.cnbc.com/2023/08/11/amazon-shares-can-rally-more-than-65percent-redburn-says.html
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