Amazon shares can rally more than 65% as cloud revenue growth reaccelerates, Redburn says

Published Fri, Aug 11 20236:30 AM EDTUpdated Fri, Aug 11 202311:20 AM EDT

Amazon can build on its already-stellar year as revenue from its cloud business picks up steam once again, according to boutique equity research firm Redburn. Analyst Alex Haissl maintained his buy recommendation on the stock and raised his price target to $230 from $220. Haissl's new price target implies a potential upside of nearly 66% from Thursday's close. The analyst cited the potential for Amazon Web Services — the company's cloud computing business — to see growth reignited after a slowdown. "The deceleration has concluded, and the emphasis now shifts to the reacceleration. Contrary to the general consensus, we project that AWS will experience a more robust reacceleration, exceeding both 2021 levels and market forecasts," Haissl wrote in the Friday note. AWS holds leading market positions in areas such as databases, data warehouses, data lakes and machine learning, Haissl said. Since services such as data preparation are crucial before deploying artificial intelligence, he thinks AWS is well-positioned to survive AI-related tailwinds that are putting pressure on the overall sector. AWS reported 12% growth in the second quarter, surpassing analysts' forecast by 200 basis points, according to the note. Although the service's revenue remained steady at $21.4 billion in the fourth quarter of 2022 and first quarter of 2023, they increased to $22.1 billion in the April to June period. Haissl also expects AWS revenue to grow more than 20% and 30% in the third and fourth quarters of this year, respectively. "More significant than the beat itself is that growth has stabilized, and for AWS it even showed a slight acceleration in 2Q23, despite limited AI contributions at the moment," Haissl wrote. "AWS's addition of $0.8bn in sequential revenues in 2Q23 confirms management's commentary of a shifting balance between optimization and new workloads," he added. Of Amazon's $7.7 billion in operating profit in the second quarter, 70% of it came from AWS, which led the cloud infrastructure market with 40% share in 2022, according to previous data from technology industry researcher Gartner. Amazon shares have been on fire in 2023, rallying nearly 65%. AMZN YTD mountain AMZN in 2023 — CNBC's Michael Bloom contributed to this report.