Amazon Stock Gains as UBS Bets on AWS Margin Beat

What happened

UBS raised its Amazon price target to $348 from $318 and kept a Buy rating ahead of third-quarter results on October 29. Amazon shares rose 0.92% before the market opened.

Confirmed

Global impact / market context

UBS expects higher spending on Amazon's cloud unit AWS, which means Amazon Web Services, to still produce a 46% operating margin, far above the 38% consensus. Stronger profit could lead investors to raise forecasts and support the share price.

Analyst inference

UBS lifted its 2027 capital spending estimate to more than $300 billion from about $250 billion, which means free cash flow, the cash left after spending on the business, could fall to zero or turn negative.

Analyst inference

What to watch

1. UBS forecasts 2027 AWS operating margin of 46%, well above the 38% consensus, with the unit adding about $80 billion of extra revenue against roughly $20 billion of extra depreciation. Confirmed
2. UBS values Amazon at 18 times its 2027 earnings per share estimate and expects investors to raise margin forecasts as results are reported over coming quarters. Proposed
3. Watch whether holding Amazon's overall margin near the second-quarter level of about 39% would require $29 billion of extra selling, general and administrative spending. Analyst inference

Evidence

• gurufocus.com