What Happened?

Shares of cloud computing and online retail behemoth Amazon (NASDAQ:AMZN) fell 3.1% in the morning session after Wells Fargo analyst Ken Gawrelski downgraded the stock's rating from Overweight (Buy) to Equal Weight (Hold) and lowered the price target from $225 to $183.

The analyst is concerned that the projected gains from AWS (Amazon Web Services - cloud computing business) would likely not be enough to power the profitability narrative. Gawrelski added, "While the market is more prepared for pressure on 4Q [operating income], we caution that margin expansion could be capped in 1H25 as well."

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What The Market Is Telling Us

Amazon’s shares are extremely volatile and have had 30 moves greater than 2.5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 3 days ago when the stock gained 3.1% as equities soared (Nasdaq +0.9%, S&P 500 +0.55%) after The Bureau of Labor Statistics reported nonfarm payrolls for September 2024, which exceeded expectations. Notably, nonfarm payrolls increased by 254,000, significantly surpassing the consensus estimate of 150,000. In addition, the unemployment rate clocked in at 4.1%, slightly below analysts' expectations of 4.2%.

Overall, the report supports the Fed's favored "soft landing" narrative, suggesting that inflation can be controlled without significantly harming the economy.

Keeping up with that theme, Reuters reported that Amazon plans to hire 250,000 transportation and warehouse workers in the U.S. ahead of the holiday shopping season. While the numbers were in line with the pace reported in 2023, it nonetheless underscores the resilient demand environment despite some retailers enduring a challenging year as consumers have had their wallets strained due to inflation, which is now cooling off.

Lastly, JMP analyst Nicolas Jones argued that Amazon could achieve $20 billion in annual cost savings with autonomous vans. Expanding on the rationale behind the idea, he added, "By eventually utilizing autonomous driving technology for middle mile, in combination with deploying electric vehicles for last-mile delivery, we see an opportunity for AMZN to reduce shipping costs by ~20% globally ($20B) over time; this reflects approximately $1.15 of savings per mile." Jones maintained a Market Outperform (Buy) rating and a price target of $265, representing a 40% premium to the stock's trading price when the research was released.

Amazon is up 21% since the beginning of the year, but at $181.47 per share, it is still trading 9.3% below its 52-week high of $200 from July 2024. Investors who bought $1,000 worth of Amazon’s shares 5 years ago would now be looking at an investment worth $2,095.

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