Amazon (AMZN) stock closed 3% lower on Monday after Wells Fargo analysts downgraded the company’s shares, citing concerns that strength in its cloud services business won’t be enough to counter challenges to its profit margins. Analyst Ken Gawrelski lowered his rating from Overweight to Equal Weight and cut his price target from $225 to $183.
Gawrelski pointed to rising competition from Walmart, slowing growth in Amazon’s ad business, and the high costs of its satellite broadband project, Project Kuiper, as factors pressuring profit growth. He expects Amazon’s margins to expand at a more moderate pace than the market anticipates, projecting a stock price of $187 over the next year.
Despite the downgrade, Amazon Web Services (AWS), which houses Amazon’s AI services, remains a key strength, generating $26.3 billion in revenue in the second quarter. However, the company’s overall earnings in early August fell short of expectations, with its retail sales growth slowing.
Amazon’s Project Kuiper could reduce its operating income by $3 billion in the coming years, while Walmart’s competitive fulfillment services, which are 15% cheaper, could force Amazon to lower its own fees. Gawrelski also expects Amazon’s ad sales to grow at a slower pace between 2025 and 2027.
Meanwhile, a U.S. judge ruled that the Federal Trade Commission’s antitrust case against Amazon will proceed, adding further uncertainty to the company’s outlook.