Slowing Investments Into Fulfilment Services Will Fuel Amazon’s Profit Beats – Analyst

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A Morgan Stanley analyst reiterated a Top Pick designation on Amazon (NASDAQ:AMZN) shares as he sees a nearly 50% upside from current levels.

The firm’s deep dive into Amazon’s fulfillment utilization implies the e-commerce giant has built enough capacity until Q4 2024, which makes the analyst very confident that Amazon can deliver profit beats going forward.

The deep-dive also prompted the analyst to cut 2023-2024 capex estimates by $10 billion and $6 billion, respectively.

“As retail volumes continue to grow (and we think accelerate) and AMZN’s incremental fulfilment investment slows, we think efficiency, profitability and cash flow will improve,” the analyst said in a client note.

The analyst also expects Amazon will report better-than-expected Q3 results and forward guidance. Earnings results over coming quarter could help shares recover in case Amazon can deliver revenue acceleration, margin expansion, and better-than-anticipated profitability.

“We remain ~2%/1% above Street 2H/’23 revenue and 38%/4% above on 2H/’23 EBIT,” the analyst concluded.

The analyst has an Overweight rating and a $175 per share price target on AMZN.