BMO Projects Amazon Stock Growth on AWS and Advertising Surge
BMO Projects Bright Future for Amazon Stock
BMO Capital has updated its target for Amazon (NASDAQ: AMZN), increasing it to $265 from the previous $236. This revision is based on an optimistic outlook for Amazon Web Services (AWS) coupled with continuous growth in both retail and advertising sectors. BMO has consistently rated the stock as ‘Outperform’ due to these encouraging trends.
Anticipation of Accelerated AWS Growth
The analysts at BMO foresee accelerated growth in AWS, skyrocketing to a projected 20% in 2025, compared to the earlier estimate of 17%. They attribute this surge to innovations such as Bedrock, which is set to unlock significant IT spending and facilitate additional AI workloads.
Key Insights from AWS Management
BMO highlights insights from Matt Garman, the CEO of AWS, who shared that numerous large customers of AWS are still underutilizing cloud capabilities, operating with only 10-40% of their workloads on the cloud. This leaves ample room for growth, with Garman suggesting the potential for these figures to ascend to 70-80% as companies continue to innovate and evolve.
Opportunities in Underrepresented Sectors
Moreover, BMO identified critical sectors such as Telecommunications and Healthcare, which have yet to make substantial transitions to the cloud. This offers remarkable upside potential for current AWS customers as they explore cloud services more fully.
Revised Growth Estimates
Through their channel checks, BMO indicated that AWS growth could approach the low 20% range by 2025. As a result, their growth estimates for AWS have been updated to 20% for 2025 and 17% for 2026. Their remarks indicate that cloud migrations remain consistent, and Bedrock continues to support the onboarding of new AI workloads.
Retail and Delivery Services on the Rise
On the retail side, Amazon's Same-Day/Next-Day delivery services are set to significantly boost customer purchase frequency and enhance free cash flow potential. BMO reported that the volume for these rapid delivery services saw a remarkable 30% year-over-year increase through July, positioning Amazon to potentially deliver over 10 billion items with unparalleled speed.
Ad Revenue Growth Projections
The firm has also upgraded its forecasts regarding Amazon's advertising revenue following the launch of Sponsored TV. They project ad revenues to reach $63.6 billion in 2025 and $70.3 billion in 2026. BMO noted a strong adoption rate for Prime Video ads, especially anticipated in the latter half of the upcoming year.
Outlook on Operating Income
Considering these various factors, BMO has recalibrated its forecasts for Amazon's operating income, projecting $80.4 billion for 2025 and $95.8 billion for 2026. This adjustment underscores the confidence BMO has in Amazon's robust growth trajectory as it navigates an evolving market landscape.
Frequently Asked Questions
What is BMO's new target price for Amazon stock?
BMO has raised its target price for Amazon stock to $265 from $236.
Why does BMO expect AWS growth to accelerate?
BMO anticipates AWS growth to accelerate due to the introduction of Bedrock and an increase in AI workloads.
What sectors are highlighted for AWS growth potential?
Telecommunications and Healthcare are noted as sectors with significant cloud adoption potential.
What impact will Same-Day/Next-Day deliveries have on Amazon?
These delivery services are expected to significantly increase purchase frequency and free cash flow for Amazon.
How much is BMO projecting ad revenue for Amazon?
BMO projects Amazon's ad revenue to reach $63.6 billion in 2025 and $70.3 billion in 2026.
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