Amazon's Strategic Moves: Leaner Structure and AI Chip Partnership with Intel

Amazon's Leaner Structure and AI Chip Partnership with Intel Could Boost Growth: BofA Analyst - Amazon.com (NASDAQ:AMZN)

Intel's custom AI chips for AWS are expected to be more cost-effective, positioning AWS to meet rising AI demand, says Post. BofA Securities analyst Justin Post maintained a Buy rating on Amazon.Com Inc AMZN with a price target of $210. The re-rating reflects CEO Andy Jassy's goal for a leaner Amazon by the end of the first quarter of 2025, translating into an estimated $700 million in cost savings and Amazon Web Services' multi-year, multi-billion-dollar co-investment into custom AI chips with Intel Corp INTC. Post noted that Intel chips would be more cost-effective for customers than alternatives. Intel will produce custom AI fabric chips for AWS that will be built on Intel 18A, the company's most advanced process node. According to the analyst, AWS remains well-positioned to capture broad-based AI customer demand due to its more diverse and growing product offering. Post estimates $700 million annually in cost savings under Jassy's plans to increase Amazon's individual contributor-to-manager ratio by slashing management layers and making employees return to the office five days a week beginning in January. Assuming a non-warehouse workforce of 400,000 and a current manager-to-contributor ratio of 1 to 6, at least 2.5% of employees (around 7,000) are projected to shift from manager roles to contributor positions, and if the difference in pay is $100,000. Post's price target is based on his sum-of-the-parts (SOTP) analysis, which values the 1P retail business at 1.2 times 2025E Revenue, the 3P retail business at 3.0 times 2025E Revenue, AWS at 8.0 times 2025 Sales, and the advertising business at 5.0 times 2025 Sales. For 2025E, Post's 8.0 times AWS multiple is relatively below his SaaS comps at 8.5 times, his 1.2 times GMV multiple is a discount to his retail comps at 1.3 times, and his 5.0 times advertising multiple is a discount to his digital advertising comps at 5.2 times. The analyst deems some conglomerate discounts as warranted with elevated regulatory risk but long-term notes that in-line to discount multiples are warranted given growth rates more than peers. Price Action: AMZN stock is up 1.22% at $187.15 at the last check on Tuesday. Image via Shutterstock Market News and Data brought to you by Benzinga APIs

BofA maintains Buy rating on Amazon stock with steady price target By Investing.com

BofA Securities has expressed continued confidence in Amazon.com (NASDAQ: NASDAQ:AMZN), maintaining a Buy rating and a price target of $210.00. The endorsement follows news of a significant partnership between Amazon Web Services (AWS) and Intel. This collaboration involves a multi-year, multi-billion-dollar investment in custom chip designs, with Intel set to produce custom AI fabric chips for AWS using its most advanced process node, Intel 18A. The custom chips, which are expected to begin production in 2025 based on Intel's previous announcements, are part of AWS's strategy to diversify its offerings. Amazon has been proactive in providing a range of choices to AWS customers, including third-party large language models (LLMs) on Bedrock and a variety of third-party and first-party chips for different workloads. The partnership with Intel is anticipated to offer cost-effective chip options compared to other alternatives. Despite concerns about potential disruption from AI to AWS's leading position in the cloud market, BofA Securities believes that AWS is well-equipped to meet the growing AI demands of customers. In other recent news, Intel Corporation (NASDAQ:INTC) has maintained its Peerperform rating by Wolfe Research following the announcement of a formal split of its manufacturing business. The move is intended to ensure independence and protect customers' interests. Despite this, Wolfe Research does not view a complete spin-off of the manufacturing division as beneficial due to the high fixed costs and potential limitations on the chip company's flexibility. Intel also announced a multi-billion-dollar supply agreement with Amazon, which includes an AI fabric and a custom Xeon CPU. Although seen as a positive development, the research firm suggests it may not significantly impact revenue. In a separate development, Teresa Ribera, Spain's Minister for Ecological Transition, has been nominated as Europe's new antitrust chief. If approved, she will oversee decisions on multi-billion euro mergers and maintain stringent antitrust rules. Furthermore, the Competition Commission of India (CCI) has found Amazon and Flipkart in breach of local competition laws, favoring specific sellers on their platforms. This finding could lead to further regulatory scrutiny and potential penalties for these e-commerce firms. As Amazon (NASDAQ:AMZN) continues to expand its technological horizons with partnerships like the one with Intel for custom AI chips, investors are closely watching the company's financial metrics. According to InvestingPro data, Amazon boasts a massive market capitalization of $1.98 trillion, reflecting its dominant position in the market. The company's revenue growth remains robust, with a 12.32% increase over the last twelve months as of Q2 2024, signaling continued business expansion. InvestingPro Tips highlight Amazon's notable position in the Broadline Retail industry and the company's ability to operate with a moderate level of debt while its cash flows can sufficiently cover interest payments. Additionally, analysts predict Amazon will be profitable this year, which is supported by a solid gross profit margin of 48.04% over the last twelve months as of Q2 2024. These factors contribute to BofA Securities' confidence in maintaining a Buy rating for Amazon's stock. For investors seeking more in-depth analysis, there are over 11 additional InvestingPro Tips available that delve into Amazon's financial health and market performance. These tips provide a comprehensive view of the company's valuation multiples, profitability, and returns, which can be crucial for making informed investment decisions.