Wells Fargo Downgrades Amazon: Positive Turning Points Thwarted

Wells Fargo analysts have downgraded Amazon from 'Overweight' to 'Equal Weight'. This move comes in light of numerous challenges that could dampen the currently positive trend in Amazon’s earnings forecasts. In a report to its clients, the bank also lowered the stock's price target from $225 to $183, citing existing issues that could constrain Amazon’s operating income growth through 2027. Although Amazon Web Services (AWS) continues to perform steadily, Wells Fargo does not see the potential in this division alone to revise short-term positive estimates. Several factors, including investments in the 'Kuiper' satellite project, additional pressure from Fulfillment by Amazon (FBA) fees, and subdued advertising revenue, could impede Amazon’s revenue growth. Additionally, there is a warning that margin expansion could also be limited in the first half of 2025. The bank's experts expect no positive adjustments to expectations until the announcement of Amazon’s forecast in July 2025. In response, the stock's rating has been adjusted to 'Equal Weight' until there is clearer visibility on future margin expansion. Wells Fargo has significantly cut Amazon's operating income forecasts for the years 2025, 2026, and 2027 by $5.4 billion, $4.5 billion, and $5.5 billion, respectively. These decisions were justified by the slower monetization of merchant services and advertising. Despite this, analysts maintain that Amazon remains a story of margin expansion, albeit at a pace likely to develop more moderately than generally expected. Another pressure point could come from Walmart’s expanding fulfillment services, which are currently 15% cheaper than Amazon's FBA offering. Wells Fargo forecasts that Walmart’s growing fulfillment capabilities could impact Amazon’s fees and services. In light of these challenges, the bank sees limited opportunities for a short-term recovery in Amazon’s earnings growth, prompting the downgrade in price target and rating.