Amazon stock fell Monday after the tech behemoth got a rare downgrade from a Wall Street analyst.
Wells Fargo analyst Ken Gawrelski lowered his rating on Amazon stock to equal weight from overweight in a note to clients early Monday. He also lowered his price target for Amazon stock to 183 from 225.
In Gawrelski's view, Amazon's "positive estimate revision story faces multiple headwinds." Those challenges include Amazon's investment in its Project Kuiper satellite internet business, increasing competition for sellers from Walmart and moderating operating income contributions from Amazon's advertising business.
"While Amazon remains a margin expansion story, we see a more moderate margin expansion pace than the market expects," Gawrelski wrote to clients.
On the stock market today, Amazon stock fell more than 3% to close at 180.80. Amazon stock has gained 19% year-to-date including Monday's action, slightly behind a 20% gain for the S&P 500. Shares are trading below highs near 200 that Amazon reached in early July.
Amazon Web Services Strength 'Not Enough'
The cut from Wells Fargo comes despite the analyst's positivity about Amazon Web Services, the company's profit-driving cloud division. Sales growth has accelerated in recent quarters after slowing in late 2022 and parts of last year.
"In our view, AWS strength alone is not enough," Gawrelski wrote.
The concern is that Walmart's competing service for sellers could pressure Amazon's merchant fees. Further, Amazon's fast-growing advertising business has helped boost retail margins. But Wells Fargo expects advertising to expand at a more modest pace.
"While the market is more prepared for pressure on (fourth quarter operating income), we caution that margin expansion could be capped in (first half) 2025 as well," Gawrelski wrote.
Amazon Stock: Rare Downgrade
Amazon is generally a favorite among Wall Street analysts. Out of 65 analysts following Amazon stock, 61 rate the stock a buy, according to FactSet. Wells Fargo is now among four hold or neutral ratings. There are no sell calls.
Despite the general bullishness, Amazon stock has traded sluggishly since July. Shares hit an all-time high near 201.20 early that month before pulling back. A second quarter earnings statement that showed lower-than-expected revenue in early August sent Amazon stock tumbling lower.
Amazon stock rallied back late last month to a recent high near 195.37 but pulled back once more, with seven straight trading days in the red before a modest gain Friday.
Overall, Amazon stock has formed a long consolidation pattern with a 201.20 buy point, according to IBD MarketSurge.
