Amazon's stock slipped 2% in Friday trading after the company's third-quarter results fell short of Wall Street's expectations, yet a wave of analyst commentary suggests the dip may be a long-term entry point for investors.
The e-commerce and cloud giant reported earnings of $1.89 per share, missing the $1.96 consensus, while revenue of $201.94 billion came in slightly below the $202.31 billion forecast. AWS revenue reached approximately $45.98 billion, broadly in line with estimates, but the market's focus quickly shifted to the company's aggressive capital expenditure and its implications for cash flow.
Amazon's capital expenditure hit $75.9 billion in the third quarter, reflecting continued investment in data centers and AI capacity. The company also reported a trailing 12-month free cash flow outflow of $42.4 billion, underscoring the heavy capital requirements of its AI infrastructure expansion. Shares initially tumbled nearly 7% in premarket trading before recovering some losses.
Analysts Maintain Bullish Stance Despite Miss
Despite the earnings disappointment, most analysts retained positive ratings, viewing the sell-off as an overreaction. Morgan Stanley's Brian Nowak kept an Overweight rating but trimmed his price target to $335 from $350, still implying roughly 37% upside. Nowak noted that AWS revenue grew by $3.8 billion quarter-over-quarter, the second-largest increase in the segment's history, and said the results did not alter the cloud business's long-term opportunity.
Deutsche Bank maintained a Buy rating and a $325 target, attributing the negative reaction to AWS growth falling short of elevated investor expectations. The bank highlighted management's guidance for growth above 40% and suggested that recent capital expenditure could support further acceleration in the coming quarters.
Bernstein also kept an Outperform rating with a $320 target, acknowledging weak advertising growth but pointing to accelerating cloud growth and management's indication that growth above 40% is achievable through 2028.
Price Target Adjustments Reflect AI Spending Concerns
Several firms revised their price targets, though most retained positive stances. Barclays maintained an Overweight rating and a $365 target, emphasizing Amazon's capacity expansion and growing backlog, noting the company is adding more cloud capacity than any other provider. Bank of America lowered its target to $317 from $320 but kept a Buy rating, noting AWS growth accelerated to 39% quarter-over-quarter, though investor expectations had reached as high as 42%.
Goldman Sachs reduced its target to $370 from $375 while maintaining a Buy, citing uncertainty around the long-term economics of AI, including sustained capital expenditure and financing of infrastructure expansion. Nevertheless, the bank expects multi-year revenue growth and operating margin expansion.
TD Cowen cut its target to $340 from $350 but retained a Buy rating, describing the post-earnings sell-off as overdone.
AWS Outlook Central to Bullish Forecasts
Analysts continue to view AWS as the primary driver of Amazon's investment case. UBS raised its price target to $352 from $348, highlighting management's expectation of AWS growth above 40% in fiscal 2027 and 2028, and pointing to a $578 billion backlog as evidence of demand visibility. BMO increased its target to $390 from $380, noting AWS revenue growth accelerated by 200 basis points from the second quarter, marking six consecutive quarters of improving growth. The firm also highlighted triple-digit year-over-year growth in AI revenue, with Amazon Bedrock emerging as a key contributor.
Citi maintained a Buy rating and a $350 target, pointing to potential for AWS margins to remain in the mid-to-high 30% range. JPMorgan also retained an Overweight rating and a $365 target, citing management's confidence in demand as support for its investment plans.
While the earnings miss and heavy AI spending have raised near-term concerns, the consensus among analysts is that Amazon's cloud and AI investments position it for sustained growth, making the current pullback a potential opportunity for long-term investors.
This article is for informational purposes only and does not constitute financial advice.
