Amazon's stock is up just 3% this year. Can the company catch up with its competitors?

Amazon is investing a record $104 billion in growth, including AI, cloud technology and robotics, but its stock is being heavily left behind this year by other AI giants like Meta and Nvidia. Why does Wall Street expect earnings growth to accelerate in the second half of the year and what are analysts advising investors?

Since the beginning of the year, Amazon shares have added only 3%, while Meta, Microsoft and Nvidia have jumped more than 20%. Amazon's stock price is lagging despite record capital expenditures, wrote Bloomberg. In 2025, Amazon's capex will total $104 billion - more than any company in the S&P 500, according to the agency.

The investments will go, among other things, to artificial intelligence, which Amazon promotes as a driver of efficiency and revenue growth. In June, the company announced plans to invest at least $20 billion in data centers in Pennsylvania and North Carolina. However, despite its diversified business - from cloud services to advertising - Amazon's main revenue still comes from online retail, which has come under pressure from higher import duties, Bloomberg notes. 

The retailer is expected to report earnings of $1.32 per share on July 31 on revenue of $162 billion for the second quarter, according to analysts polled by the agency. That's year-over-year growth of 4% and 9%, respectively. At the same time, the average profit growth among the "Magnificent Seven" companies is estimated at 15%, while revenue growth is estimated at 12%, according to Bloomberg Intelligence.

"Investors aren't rushing to reward Amazon for its AI work just yet," Brian Recht, an asset manager at Janus Henderson, notes in a Bloomberg statement. - Traders want to see if the company can actually use AI to improve profitability, and we estimate that evidence of effectiveness will become more evident as early as this quarter." 

Now the main focus is on the cloud business Amazon Web Services, which should benefit from the growing demand for AI, notes Bloomberg. But, according to Recht, Amazon's retail business can also get a serious boost: AI helps to target advertising more accurately, optimize logistics and speed up the work of warehouses. Amazon is also actively promoting chatbot Rufus, which helps users navigate through products, prices and reviews.

In addition, robotics remains one of the most promising areas for Amazon, primarily as a way to radically improve the efficiency of logistics and warehouses. According to The Information, the company is already building a special training ground to train humanoid robots, which it plans to use in future in delivery. Bank of America estimates that such automation will help Amazon save more than $7 billion a year by 2032. "The retail business operates on minimal margins, so it's important for Amazon to use every tool it can to improve efficiency," said Irene Tankle, chief U.S. equity strategist at BCA Research. - Artificial intelligence and robotics offer huge potential specifically in warehouse logistics. These technologies will be introduced gradually over 5-10 years, but Amazon is already setting the pace - and that certainly gives it an advantage."

Morgan Stanley analysts also believe Amazon's retail business may be the most undervalued beneficiary of generative AI in the entire tech sector, Bloomberg adds. On July 11, investment bank analyst Brian Novak raised his target price on Amazon's shares to $300 from $250 and maintained an Overweight rating equivalent to a buy recommendation. Novak's new target implies the company's market value will rise another third from its last closing price. Morgan Stanley alsonamed the company's securities as its top bet - primarily due to its AWS cloud business. The analysts estimate that it is this platform that will provide an acceleration in earnings growth in the second half of 2025 and remain a steady source of revenue thereafter. An additional driver, according to Morgan Stanley, will be Amazon's partnership with AI startup Anthropic, for which it acts as the main infrastructure provider. This partnership could add at least 1.5 p.p. to the company's annual revenue growth rate.

The vast majority of analysts - 69 out of 71 - advise investors to buy Amazon stock (Buy and Overweight ratings). The remaining two are neutral with a Hold rating and no recommendation to sell. The Wall Street consensus price target for the company's securities is $246.7 - up 9% from the closing price on July 18.

This article was AI-translated and verified by a human editor