Shares of Amazon (AMZN 1.41%) climbed higher on Tuesday, gaining as much as 2.6%. As of 1:41 p.m. ET, the stock was still up 1.2%.
The catalyst that pushed the e-commerce giant higher was a bullish assessment from a Wall Street analyst.
According to online investment publication The Fly, analysts at Bernstein have named Amazon the company’s “best idea for 2024.” Analysts maintained an Outperform (Buy) rating and a $175 price target on the stock, suggesting additional upside potential of 21% compared to Monday’s closing price.
Although the investment management company did not provide much comment to explain the call, its statements did provide some clues. Bernstein said it is increasing its 2024 earnings before interest and taxes (EBIT) estimates for Amazon Web Services (AWS) “to reflect margin strength and fixed cost leverage.”
This suggests that the analyst expects Amazon to be able to make more profit on every dollar of cloud services revenue next year.
A change of heart
While Amazon investors are likely cheering the call, it’s interesting when put in the context of Bernstein’s previous commentary on Amazon.
In an open letter to Amazon in June, Bernstein’s Mark Shmulik said that while he was “clearly optimistic about the path forward,” he urged management to go back to basics and “day one” thinking. He added that the company “simply pursues too many ideas, with weaker ideas taking the oxygen, capital and, most importantly, focus” from the truly disruptive initiatives that “only Amazon can do.” “
He cited the company’s still-unclear healthcare ambitions and Project Kuiper (a plan to deploy a large satellite Internet constellation to provide low-latency broadband Internet connectivity) as distractions from Amazon’s more profitable ventures.
Is Amazon stock a buy?
Amazon’s third-quarter results appear to have brought the analyst a change of heart, although much of the improvement can be attributed to the improving macroeconomic landscape. This illustrates the widespread short-term thinking on Wall Street and why individual investors should take a longer-term view.
At about 2x futures, the stock sells for one song. Investors should ignore the noise, buy Amazon and hold for the long term.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Amazon. The Motley Fool has positions on Amazon and recommends them. The Motley Fool has a disclosure policy.