Amazon had the worst performance among Mag7 stocks. Why does the analyst believe in the company?

Despite the fact that Amazon's shares have fallen by almost 1% since the beginning of the year, becoming an outsider among the "Magnificent Seven" companies, analyst Benchmark is confident that the turning point is near. He reiterated advice to buy the tech giant's securities ahead of its quarterly report due next week. According to the analyst, the key driver for Amazon will be the acceleration of the company's cloud business and the rapid growth of the advertising direction.

Amazon's market value has gone negative by nearly 1% since the beginning of the year, the worst performance among the "Magnificent Seven" players. Still, Benchmark analyst Daniel Cournos reiterated a Buy rating and $260 target price for the company's stock, MarketWatch reports. That target is 19% above the last close of trading on Oct. 22. The analyst called Amazon's securities a "must buy" ahead of the company's quarterly report next week.

Kurnos believes that "the tipping point [for Amazon stock] will come sooner rather than later," and the upcoming quarterly report could be the catalyst for that. The analyst noted that investors are waiting for new information from the company on data center expansion and possibly the announcement of a major contract in artificial intelligence, which could be a driver of revenue growth. Amazon is actively investing in building new data centers and Kurnos is confident that Amazon Web Services (AWS) cloud division will accelerate growth to 20% by the end of 2025, while the Wall Street consensus forecast is around 18.5%, MarketWatch noted.

In addition to AWS, the analyst sees other growth factors. For example, Amazon plans to replace 600,000 employees with robots by 2033, which should reduce logistics and order fulfillment costs. According to Kurnos, this will improve the company's operating margin in the long term.

But the main potential, Benchmark said, is centered in the company's advertising business, which could grow faster than AWS and deliver higher profitability. "We were one of the first to be active in talking about the future contribution of the advertising ecosystem and Prime Video to Amazon's profitability," Kurnos said in a note cited by MarketWatch. - We continue to believe these areas will provide the company with very high margins at scale."

"We don't see a scenario in which Amazon doesn't emerge as a winner at least to some degree," Kurnos concluded.

Investors' main focus ahead of the October 30 report is on AWS's cloud division, which posted growth of only 17.5% last quarter and thus cemented its reputation as an AI laggard, MarketWatch recalls. To change that perception, AWS needs to show an acceleration in revenue growth of up to 20%, the portal says.

AWS remains the largest player in the cloud infrastructure market. Even the recent disruption of AWS services, which affected customers around the world, had little impact on quotes.

In total, according to MarketWatch, 73 analysts follow the dynamics of Amazon's securities. Despite the fall in the stock this year, Wall Street analysts are in no hurry to recommend investors to get rid of the securities: they still do not have a single advice to sell. The vast majority recommend, on the contrary, buying stocks (59 Buy ratings and 12 Overweight). The remaining two take a neutral stance with Hold ratings.

The Wall Street consensus price target is $265.6 per share, suggesting a 22% upside potential for the stock.

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