Noah Berger
Amazon (NASDAQ:AMZN) reported first-quarter results on Thursday that investors initially cheered as the tech giant beat on all metrics, and the company's cloud unit, Amazon Web Services, showed 16% year-over-year growth.
However, the company forecast a slowdown in cloud computing - which it said started in April - as customers are looking to decrease spending as economic uncertainty reigns on.
And while its shares fell on Friday, Amazon (AMZN) - seen as the 800-pound gorilla in cloud computing when compared to Microsoft (MSFT) Azure, Google (GOOG) (GOOGL) Cloud and Oracle (ORCL) - has an enormous opportunity in front of it, one some believe is "largely untapped."
Morgan Stanley analyst Brian Nowak, who rates Amazon (AMZN) overweight with a $150-a-share price target, said the company is likely "more than halfway through" cutting costs and making sure AWS is more efficient over the long-run, while adding that integrating artificial intelligence is likely to boost growth.
Separately, Nowak believes that Amazon Web Services has a $2.5T total addressable market that is still "largely untapped," notably in the public cloud.
"Stay patient," Nowak wrote in an investor note.
With regards to AI, Nowak noted that the technology is "ingrained" at Amazon (AMZN) and the multi-year AI wave "is likely to lead to structurally faster long-term public cloud growth," thus benefiting AWS.
Earlier this month, Amazon (AMZN) announced a suite of tools known as Bedrock that will give customers the ability to use foundation models: AI-based technologies built by "leading AI startups" - with their own data to create the model they need at that particular time, without having to invest in servers.
Bedrock will work with Amazon Titan, the company's own foundation model, as well as those created by stability.ai, AI21Labs and Anthropic.
UBS analyst Lloyd Wamsley, who has a buy rating and a $130 price target on Amazon (AMZN), said that bears could argue that reacceleration is not likely around the corner, as the comment that AWS is still "actively helping" customers optimize forebodes a longer-than-expected downtick.
However, Walmsley also noted that first-quarter growth for AWS was better than feared and any optimization efforts are likely to end by the summer, thus making year-over-year comparisons easier.
J.P. Morgan analyst Doug Anmuth, who also raised Amazon (AMZN) shares overweight, said he believes AWS is "actively leveraging" its more than 100,000 customers for AI and machine learning to provide generative AI capabilities, referencing the recent Titan large language models, new Trainium and Inferentia chips, the Bedrock service API and Code Whisperer, a coding companion.
In a research note, Anmuth said Amazon (AMZN) "believes the transformative opportunities around Generative AI will drive a massive multi-year shift to the cloud, & AWS will be a primary beneficiary," Anmuth wrote in an investor note
Anmuth also said that Amazon (AMZN) did not go as far as Microsoft (MSFT) did and say that the end of optimization is around the corner, the medium-term future is bright and the third and fourth quarters are likely to see a "modest" acceleration.
"Overall, AWS is performing about as expected," Anmuth said. "But we think [it] is closer to troughing and is poised to benefit from massive customer spend on AI for years to come."
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