Amazon is dipping on margin and capex concerns. Wall Street analysts still see upside
Wall Street analysts remained overwhelmingly bullish on Amazon , although most cut their price targets, after the technology giant’s shares fell Friday amid lower first-quarter profit guidance and higher capital expenditure plans. Amazon also missed its fourth-quarter earnings estimates. The e-commerce giant earned $1.95 per share versus the $1.97 analysts polled by LSEG had forecast. On the other hand, its $213.39 billion revenue beat expectations of $211.33 billion. But shares of Amazon plunged 8% on Friday morning, in part due to investors weighing a lower first-quarter margin guidance. “The 1Q sales guide for $173.5 [billion]-$178.5bn bracketed Street at $176bn and suggests 13% growth at the midpoint (a 1ppt deceleration vs 4Q), while the profit outlook at $16.5bn-$21.5bn was below Street at $22.2bn, with investments in [international] retail pricing, lower FBA fees, and a $1bn y/y increase in project Leo costs pressuring margins,” wrote Bank of America analyst Justin Post. Investors also pointed out Amazon’s huge boost in projected capital expenditures as another sore spot. Amazon lifted its 2026 spending forecast to $200 billion, much higher than the expected $146.6 billion. “The AMZN story is in the same dilemma as all hyperscalers, namely the investment community isn’t currently willing to pay a premium to back companies behind the AI build-out,” wrote Barclays analyst Ross Sandler. “With the dependency on AI, software, and enterprise companies to keep spending, FCF likely going negative this year, and the mega caps on a collision course to extract returns, investors needed more than promises to underwrite this story,” Bernstein analyst Mark Shmulik added. Despite this increase, many analysts remained optimistic that a higher spend going forward was justified. This higher attention towards Amazon’s cloud computing business already seems to be paying off, as its Amazon Web Services unit returned $35.58 billion in revenue in the last quarter compared to the $34.93 billion estimate, according to FactSet. “Amazon is not alone in this investment, and we think it makes sense that Amazon is investing more than competitors given AWS’ leading customer and revenue base,” Bank of America’s Post said. “While the clear fear in the market today is that hyper-scalers are 1- becoming more capital intensive and/or 2-the [return on invested capital] of this capex will not flow through at acceptable levels, we believe over the fullness of time these concern as it relates to Amazon will prove to be unfounded,” Deutsche Bank analyst Lee Horowitz added. “Yes, AMZN is investing (AWS, Retail, LEO), but it has a track record of showing ROIC, which leaves us bullish on this under-appreciated GenAI winner across,” Morgan Stanley’s Brian Nowak also chimed in. Amazon also posted a slight beat in its advertising revenue for the quarter. Bottom line, analysts maintained their long-term bullish stances on Amazon, although most cut their price targets. As reasons for lowering his price forecast, Bank of America’s Post cited a lower Amazon Web Servies multiple reflecting more potential margin uncertainty and overall sector multiple compression. Here’s how Wall Street’s biggest shops reacted to the report. Citi: buy rating, $265 price target The bank’s price target, down from $320, implies about 19% upside from Amazon’s Thursday close of $222.69. “Although AWS revenue growth reaccelerated to +24% Y/Y and retail sales delivered eCommerce share gains, Amazon’s ~$200B CapEx guidance for ’26 and the impact to FCF led shares to decline ~11% in after-hours trading. AWS is clearly experiencing impressive AI demand trends with monetization quickly following capacity additions and we point to Trainium and Graviton chips $10B+ ARR as examples here … We acknowledge the concerns around CapEx and FCF, but we believe AWS demand and retail momentum can continue. AMZN remains a top-pick and we maintain our Buy rating.” Bernstein: outperform, $265 Bernstein lowered its forecast from $300. “If you’re going to copy the mega cap earnings playbook of beating on core and dropping massive investment guidance, your beat had better be so big and your ROIC story so tight to catch a bid from investors here. AMZN was last to report trying the playbook that hasn’t yielded positive stock performance elsewhere. Solid AWS growth and a healthy OI beat ex-one times wasn’t nearly enough to cover a $200B CapEx number and a squishy 1Q operating income guide. Welcome to the AI trenches.” Bank of America: buy, $275 Bank of America’s forecast, down from $286, corresponds to upside of 23%. “Stock was pressured AH likely on a combination of Amazon’s capex outlook and lower 1Q margin guidance, plus the prospect of negative FCF in 2026. While the capacity ramp will add margin volatility in future quarters, we think this capacity will be fully utilized as part of the AI business transformation across industries, and will help Amazon maintain competitiveness in a very attractive sector.” Goldman Sachs: buy, $280 The bank’s target, lowered from $300, calls for 26% upside going forward. “Against an overall risk-off market backdrop where investors are less tolerant of capex increases without a commensurate revenue output, we think AMZN will likely remain the subject of scrutiny in terms of how this level of one-year forward capex could improve its rate of AWS revenue & backlog growth (even when measured against its industry leading base of revenues) … We see AMZN as well positioned for future outperformance as: 1) eCommerce margins continue to benefit from higher volumes across a more efficient logistics network and reductions in cost to serve per unit, 2) the advertising business continues to scale at high margins and 3) as AWS benefits from a long-tailed structural growth opportunity in the shifting needs of enterprise customers with tailwinds from the ramp of Gen AI workloads.” Deutsche Bank: buy, $290 Deutsche Bank’s forecast, down from $300, is 30% above Amazon’s Thursday closing price. “All in, our 26/27 OI estimates move lower by 4%/2.2%, and while our FCF estimates move materially lower, we believe this will prove to be a compelling entry point with Amazon shares trading at 23x our 2027 EPS estimates and reiterate our Buy rating while taking our target price modestly lower to $290.” Morgan Stanley: overweight, $300 Morgan Stanley’s forecast, down from $315, was approximately 35% higher than where shares were currently trading. “AWS is accelerating with even faster growth ahead and Retail is delivering with improving efficiency. Yes, AMZN is investing (AWS, Retail, LEO), but it has a track record of showing ROIC, which leaves us bullish on this under-appreciated GenAI winner across. Raise ’27 EPS by 3%, $300 PT, OW.” Barclays: overweight, $300 “Cranking up across the board — but comes with a hefty price tag. The AMZN story is in the same dilemma as all hyperscalers, namely the investment community isn’t currently willing to pay a premium to back companies behind the AI build-out. This narrative could shift as capabilities ramp and large portions of the economy increase AI workload spend.” UBS: buy, $301 UBS’ target, down from $311, equates to 35% upside. “2027E GAAP EPS should reach ~$14 and AMZN shares are hence trading at ~14x – which is a significant discount relative to its megacap peers, despite a superior EPS growth profile (41% 2-year CAGR to 2027E). Our PT drops to $301 as we continue to assume elevated CapEx levels hold into 2027 and our FCF estimate decreases 3% (as revenue benefits will be realized in 2028E and beyond) and we reiterate our Buy rating.”
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