Amazon’s Analyst Fan Base Grows Even More After the Stock Stalled

(Bloomberg) -- Wall Street is keeping its faith in Amazon.com Inc., the only megacap technology stock with unanimous analyst buy ratings, even after the e-commerce giant lagged behind its peers by a huge margin for the past 18 months.

Morgan Stanley grew more optimistic on the shares after their worst annual performance since 2014, raising its price target Monday and foreseeing 30% upside. Bank of America Corp., meanwhile, named Amazon its top pick for 2022. The firms are among the almost 60 banks and brokerages that follow the company, and every single one of them recommends buying the stock -- a fan base no other trillion-dollar technology peer has. 

Analysts are willing to look past Amazon’s recent sluggishness -- the stock rose 2.4% in 2021 -- in part because the company has rewarded investors so handsomely since it was founded by Jeff Bezos in the 1990s. The shares have returned an average of 36% a year since it went public in 1997, versus 9.2% for the S&P 500. 

“The underperformance should not be mistaken as something underlying is wrong,” said Peter Garnry, head of equity strategy at Saxo Bank. The company is laying the groundwork for future returns, he said: Amazon has invested almost $100 billion in the last two fiscal years, which is more than the company’s combined investments since its founding to 2019.

The stock rose 0.2% to $3,236.39 at 9:33 a.m. New York time. At that price, the stock is 14% below the lowest analyst price target, according to data compiled by Bloomberg.

Amazon should enjoy a “significant” expansion in profit margins from 2023 to 2025 as larger revenue pools from Amazon Web Services, advertising, and its third-party market place have the potential to contribute more than $70 billion in profits, according to Bank of America. 

The shares have been hurt by rising wage inflation and supply chain constraints. “We expect several of these headwinds to ease throughout the year,” BofA analyst Justin Post wrote in a report Monday naming the stock his top pick among the so-called FANG companies. He sees Amazon reaching $4,450 over the next year, implying a 38% increase from Monday’s close. The average price target among analysts is $4,122.

Goldman Sachs Group Inc. analysts in November named Amazon their top internet pick for 2022, saying the stock’s underperformance since the middle of 2020 made it more attractive. The stock, however, has fallen about 9% since then, compared with a 4% decline for the Nasdaq 100 Index. 

Analysts like Amazon’s exposure to fast-growing markets such as e-commerce and cloud computing but its lofty valuation has been a liability amid fears about a surge in U.S. Treasury yields as the Federal Reserve unwinds pandemic-era stimulus measures. Priced at 48 times estimated earnings for the next year, Amazon is more than twice as expensive as Google owner Alphabet Inc. and Facebook parent Meta Platforms Inc. 

Tech Chart of the Day

The ChiNext Index, China’s Nasdaq-style benchmark, has fallen every session so far in 2022 and is down seven days in a row. That’s the longest losing streak since a seven-day drop in February, when risk-off sentiment hurtled the gauge into bear territory led by a drop in some of the hottest renewables firms. The ChiNext is down 8% this year, and is seeing another selloff in the most prominent winners, including heavyweight Contemporary Amperex Technology Co., a maker of electric-vehicle batteries for Tesla Inc.

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