Wells Fargo Includes Amazon on Focus List for Outperforming the Market

Wells Fargo Investment Institute Forecasts Promising Growth for Amazon

Amazon Joins Wells Fargo's Focus List

The Wells Fargo Investment Institute is increasingly optimistic about Amazon's growth potential. The e-commerce giant's Amazon Web Services (AWS) and North American retail segments are approaching pivotal moments, according to analyst Lawrence Pfeffer. As Amazon returns to normalized operations and anticipates a potential 174% surge in free cash flow between 2023 and 2025, Pfeffer has added the company to the firm's focus list. This list aims to outperform the S&P 500 over approximately a one-year period on a total return basis.

Amazon's Performance and Future Prospects

Amazon's shares have seen a significant rally this year, with an increase of over 65%. The stock experienced an 8% surge following its largest earnings beat since the fourth quarter of 2020. Amazon's optimistic guidance has also contributed to its positive outlook. Pfeffer attributes Wells Fargo's increasingly bullish stance to a resurgence in AWS growth after a period of weakness and improved commentary from management regarding its AI goals.

Positive Trends in Amazon's AWS and Retail Sectors

Despite potential pressure on technology budgets in the near term, Wells Fargo has been "positively surprised" by AWS's recent customer activity. Pfeffer sees a re-acceleration in growth, albeit modest, in AWS's core functions over the next few years as a key catalyst for the stock. The firm is also gaining confidence in Amazon's North American retail business as it benefits from lower transportation rates, shipping costs, and increased regional utilization.

Amazon's Push for Faster Delivery Times

Pfeffer suggests that Amazon's push for faster delivery times and frequency should also boost its retail business. He explains that the broader availability of high purchase frequency items with same-day delivery times means more vans delivering more packages in the same neighborhood. The "last mile" in parcel delivery is traditionally the most expensive, and Pfeffer believes that a return of positive momentum in this area is key.

Implications of Amazon's Growth for New Businesses

The Wells Fargo Investment Institute's bullish forecast for Amazon's growth could have significant implications for new businesses, particularly those in the e-commerce and technology sectors. For e-commerce startups, Amazon's anticipated growth underscores the potential of this industry. However, it also highlights the competitive nature of the market. New businesses must differentiate themselves to succeed in this environment. They could learn from Amazon's focus on faster delivery times and frequency, which are key factors in boosting its retail business. For tech startups, particularly those in the cloud computing space, the resurgence in AWS growth could signal increased opportunities. However, they should be prepared for potential short-term pressure on technology budgets. The positive customer activity reported by AWS suggests that businesses are recognizing the value of cloud services, which could benefit new companies in this space. In conclusion, while Amazon's projected growth presents challenges due to increased competition, it also offers opportunities for new businesses. By learning from Amazon's strategies and capitalizing on trends in e-commerce and cloud computing, new businesses can position themselves for success in these dynamic markets. Article First Published at: https://www.cnbc.com/2023/08/09/wells-fargo-adds-amazon-to-its-focus-list-to-beat-the-market.html Brought to you by ChatGPT for www.BusinessFormation.io