Amazon shares edged higher in early Tuesday trading after a top Wall Street analyst published a bullish note on the tech and retail giant ahead of its quarterly earnings report.
Amazon (AMZN) , which will report third quarter earnings alongside a host of megacap tech names next week, has added around $400 billion in market value this year, extending its gain as one of the top performers among the so-called Magnificent 7 tied to growth in its Web Services division and improving profit margins in its e-commerce unit.
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The group's shares have also rebounded from a modest September pullback after Amazon won a partial victory in a contentious antitrust case brought by the Federal Trade Commission and its chief, Lina Khan, when a portion of the charges were dismissed by federal Judge John Chun.
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However, the stock has yet to reach the levels it scaled prior to its second-quarter update in August, when the group forecast full-year capital spending plans at between $154 billion and $158.5 billion while issuing weaker-than-expected revenue growth.
Those issues are likely to remain key in next week's update, according to a note published Tuesday by Goldman Sachs analyst Eric Sheridan, who reiterated his 'buy' rating and $230 price target on the group.
Goldman Sachs sees strong Q3 Amazon revenue
"We maintain our view that Amazon will deliver a strong mix of revenue growth and operating margin expansion over the long term, while continuing to invest in critical growth initiatives," Sheridan and his team wrote.
"We remain convinced that investments to offer lower price points and expanded selection, including essentials, are sound long-term strategic decisions."
Wall Street forecasts suggest Amazon will post overall revenue of $157.2 billion for the three months ended in September, a 9.8% gain from the same period last year, with Web Services sales rising by around 19.2%.
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Amazon's legacy e-commerce unit, meanwhile, will likely benefit from a record Prime Day event in July, at which sales rose 11% over the two-day period to $14.2 billion.
Amazon's move earlier this summer to launch a grocery-delivery subscription service, tied to its Prime membership base, will likely be the focus of questions for the group's retail division when CEO Andy Jassy speaks to analysts after the latest update.
The new plan will enable Prime members to pay $9.99 per month for unlimited delivery orders over $35 from Whole Foods Market and Amazon Fresh as it looks to challenge grocery-delivery leaders such as Walmart (WMT) and Target (TGT) .
That should translate into a bottom line of $1.14 a share, according to Refinitiv estimates, a 21.2% advance from the year-earlier level.
Sheridan says, however, that Amazon will need to offer more details on some of its less-visible divisions, such as its massive Project Kuiper satellite-internet venture and its plans to close the gap between its Alexa assistant and Apple's (AAPL) AI-infused Siri.
AI investment focus at Amazon
Jassy told investors in April that the group was building a "substantial number of [generative artificial-intelligence] applications across every Amazon consumer business."
Those, it said, "range from its AI-powered shopping assistant, Rufus, to an even more intelligent and capable Alexa, to advertising capabilities (making it simple with natural language prompts to generate, customize and edit high-quality images, advertising copy and videos)."
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Andrew Ng, who lead AI projects at Alphabet and Baidu, was named to the Amazon board earlier this month as part of the group's new investment drive.
"We believe non-core investments are growing, and any segment disclosure, especially around Devices & Services, would improve visibility on core profitability (similar to Alphabet’s Other Bets and Meta’s Reality Labs)," Sheridan said.
Amazon shares were marked 0.27% higher in early Tuesday trading to change hands at $188.15 each, a move that would extend the stock's year-to-date gain to around 25.5%.
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