By Emily Bary
Bernstein analyst dubs Amazon's stock his new top pick in the internet sector
In a sea of Big Tech outperformers, Amazon.com Inc.'s stock still stands out as particularly attractive.
That's according to Bernstein analyst Mark Shmulik, who dubbed the name his "top pick" among internet stocks this week despite a 45% year-to-date rally.
Yes, Amazon shares (AMZN) have seen some strong recent momentum, Shmulik wrote, but they've also given back essentially all their pandemic-era gains. He wrote that he sees Amazon's story as "one of untapped potential" with room for improvement in both the retail and AWS cloud-computing businesses.
Amazon is holding market share in its retail business, according to Shmulik, and the company's operating margins seem to be "turning the corner." While Amazon's U.S. retail business boasted 4% margins before the pandemic, he wondered whether high-single-digit or even 10% margins might be possible down the line.
There's even the potential for Amazon's U.S. gross merchandise volume, or the value of goods sold on its platform, to eclipse Walmart Inc.'s (WMT) U.S. sales this year, he noted, as he lifted his price target on Amazon shares to $140 from $125 and kept his outperform rating.
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In its cloud business, Amazon has been stung by the "triple cocktail of optimization + discounts + exposure to unprofitable tech" as customers have become more cautious in the current environment. But Shmulik thinks AWS "is about to bottom before returning to growth," with a strong backlog.
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Additionally, AWS margins could come to benefit from recent staffing reductions and other moves to reduce employee-related expenses, like hiring freezes and reduced compensation.
Shmulik also saw some newer, unappreciated areas that Amazon could tap into in a big way going forward. Its Buy with Prime business, which transfers Prime membership benefits to other participating sites, represents a $30 billion to $50 billion opportunity for the company, in Shmulik's view. And the company's media business is compelling, with the potential to grow advertising revenue at an 18% compound annual growth rate through 2026, by his math, coming off a $38 billion base.
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May 31, 2023 08:38 ET (12:38 GMT)
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