Amazon’s cloud computing headwinds are firmly in the past: analysts

Amazon’s (NASDAQ:AMZN) first-quarter results were indicative that any headwinds AWS had experienced in the past are over, aided in part by generative artificial intelligence, Wall Street collectively believes.

The core AWS demand is accelerating and generative AI is quickly becoming a multi-billion annual recurring revenue business for the cloud computing giant, Citi analyst Ronald Josey said. Josey, who boosted his price target to $245, added the focus is increasingly turning to operating income margins, which are improving for the unit.

AWS segment operating income was $9.4B, up from $5.1B in the year-ago period. Total operating income for the company rose 218% year-over-year to $15.3B, while operating margin came in at 10.7%, above the 7.63% estimate.

Others agreed with the assessment that AWS has firmly turned the corner and any slowdown in spending from cloud customers is in the past.

“AMZN’s greater capital intensity — which is coming mostly in AWS — is driven by increased demand for cloud services and GenAI,” J.P. Morgan analyst Doug Anmuth wrote. “We believe this is positive as AMZN has a very clear path to monetization of infrastructure investments through AWS, & has a track record of favorable returns.” Anmuth has an Overweight rating on Amazon and boosted his price target to $240 from $225.

Now with the “lion’s share of optimizations” ended, investors should have “incremental confidence” about AWS’s growth going forward, Morgan Stanley analyst Brian Nowak said. And unlike in the past, Amazon management is confident that it can grow profitably as it turns to new initiatives. Nowak reiterated his Overweight rating and boosted his price target to $220 from $215.