Bank of America raises price on Amazon ahead of earnings

Bank of America has reiterated its Buy rating on Amazon, raising its price target to $265 (16.5% upside) ahead of Q2 earnings, driven by expectations of significant AI potential unlock in H2 and robust Q2 retail data. Analyst Justin Post anticipates accelerated AWS growth in the second half, fueled by increased capex and strong AI demand, despite an expected Q2 AWS deceleration. The market will closely watch H2 AWS growth commentary and the impact of a longer Prime Day, while tariff uncertainty remains a key risk.

Analysis

Bank of America has reiterated a bullish stance on Amazon (AMZN), raising its price target to $265, which implies a 16.5% upside from the previous close. The optimism is rooted in expectations for a strong second half of the year driven by the company's artificial intelligence initiatives. Analyst Justin Post's estimates for Q2 are above consensus, supported by strong e-commerce data, an extended Prime Day sales event, and currency tailwinds. While a slight deceleration in Amazon Web Services (AWS) growth is anticipated for Q2 compared to Q1, the core of the bull thesis rests on an expected re-acceleration in the second half. This is projected to be fueled by a strong Q1 AWS backlog, accelerating AWS capital expenditures, and high demand for AI, including from partners like Anthropic. The market's focus for the upcoming July 31 earnings report will be on management's H2 outlook for AWS, as investors may grow impatient for returns on escalating capex, especially as competitors report accelerating cloud revenue. Key risks to the outlook, as flagged by the analyst and the company, include tariff uncertainty and broader recessionary fears.

Key Decisions for Investors

• Investors should closely scrutinize management's commentary on the second-half growth outlook for AWS during the upcoming earnings call, as this is positioned as the primary catalyst and a key point of market focus.
• Consider the potential for near-term volatility stemming from the expected Q2 deceleration in AWS growth against the longer-term bullish thesis of H2 acceleration driven by AI and capex investments.
• It is prudent to factor in the cited risk of tariff uncertainty and potential macro weakness, which could temper guidance and introduce headwinds despite the positive fundamental outlook for retail and cloud.