BMO: Amazon's CapEx a Misunderstood Growth Opportunity

Analyst Calls CapEx Concerns Misplaced

BMO Capital has reiterated its Outperform rating for Amazon, raising the price target to $310 per share. The firm argues that investors are misinterpreting the company's heavy capital expenditure as a negative, when it should be viewed as a significant long-term growth catalyst, particularly in AI and cloud services.

Strong Q4 Performance Overview

The positive outlook follows a standout fourth quarter for Amazon, which featured a 400bps sequential acceleration in AWS growth to 24%, its fastest rate since the third quarter of 2022. The advertising segment also demonstrated robust health, growing 22% year over year, supported by new strategic partnerships with major streaming platforms.

Impact on Market Valuation

BMO's analysis suggests the market is overlooking the benefits of Amazon's plan to spend $200 billion in CapEx. This investment supports rapid infrastructure expansion, including a goal to double capacity by 2027. Furthermore, Amazon's proprietary chip businesses, Graviton and Trainium, now exceed a $10 billion annual revenue run rate, validating the company's strategic investments.

Summary Outlook

While substantial CapEx can raise short-term concerns, BMO Capital views Amazon's aggressive spending as a decisive move to solidify its leadership in AI and cloud computing. The firm applauds the strategy, suggesting that the market is undervaluing the long-term returns from these critical infrastructure investments.

FAQ

Q: Why does BMO believe Amazon's CapEx is a positive?
A: BMO sees the spending as a crucial investment to expand AI and cloud infrastructure, which is expected to drive significant long-term growth and solidify market leadership.

Q: What is BMO's new price target for Amazon?
A: BMO Capital raised its price target for Amazon stock to $310 per share.

Source: Investing.com