Stifel on Thursday issued the highest Amazon price target on Wall Street, highlighting the company's continued leadership in e-commerce and cloud services as critical to expectations of wider profit margins.
Analyst Scott Devitt told clients to expect Amazon shares to rally to $2,525 from Wednesday's close at $1,974.85 over the next year. That would be a gain of more than 27 percent to a level that's higher than any other analyst projection listed by FactSet.
"Amazon is a leader in two large and rapidly growing markets, eCommerce and cloud services," Devitt wrote in a note. "The company is investing in a number of initiatives, including Prime, AWS, India, logistics, video content, and Alexa, which will limit the opportunity for near-term margin expansion."
"We support where Amazon's investment dollars are focused as we believe this better positions the company for continued market share gains and opportunity for greater margin expansion once the company emerges from the current investment cycle," the analyst added.
Amazon topped $1 trillion in market cap on an intraday basis earlier this month but has never finished a trading session above the benchmark. Should Amazon's 487,741,189 outstanding shares rally to Devitt's $2,525 target, the company's market cap would total $1.23 trillion.
Amazon's marked profit expansion has largely been driven by growth in its high-margin businesses such as cloud and advertising. Amazon CFO Brian Olsavsky said in a conference call in July that those two segments were a "big contributor" to burgeoning profits as Amazon's traditional web-based retail business was delivering thinner margins.
"Amazon has a knack for building dominant businesses from scratch, literally out of thin air. They have a new business now in advertising ... that's going to be doing about $20 billion in revenue by 2020," Devitt said on CNBC's "Halftime Report" later Thursday.
"That's $100 billion cap business in terms of market value alone on a business that is somewhat newly created," he added.
Amazon has posted particularly impressive growth in Amazon Web Services, its on-demand cloud computing platform. The business segment grew nearly 50 percent in the second quarter.
Olsavsky added that more efficient warehouses and data centers have also improved performance as well as the growth of its higher-margin third party marketplace.
The solid earnings and revenue results have pushed Amazon's shares higher, with the stock more than doubling in the past year and sparking overvaluation concerns. Still, Amazon's stock rose 1.8 percent following the Stifel note.
The strong performance has also allowed CEO Jeff Bezos to experiment with new ventures in brick-and-mortar retail, including the 2017 purchase of Whole Foods.
The company on Thursday opens a new store that sells items rated 4 stars or better on its website. The shop is set to welcome customers in New York's SoHo neighborhood and sells a variety of goods ranging from cooking skillets to card games.