Investing.com – Amazon shares put up a strong performance in 2024, beating both the Nasdaq and the e-commerce sector with a 44% increase, compared to 25% on the Nasdaq. This increase was supported by an expansion in the P/E ratio, which increased from 2.3x at the beginning of 2024 to 3.1x.
Analysts at Bank of America have pointed to Amazon Web Services (AWS) and retail margin growth as primary drivers for Amazon’s (NASDAQ:) success. They expect AI-driven cloud growth to remain an important opportunity within the sector in 2025.
Furthermore, retail margin expansion is expected to continue to drive earnings growth that is outperforming Amazon’s peers. Analysts also noted that Amazon is positioned to deal with the impact of an appreciation of the US dollar, which could benefit cloud margins.
Looking ahead to 2025, BOFA has identified several investment positives for Amazon stock. These include a strong AI cycle for AWS, further retail margin efficiencies, a multi-year productivity cycle driven by bots, an increase in video advertising revenue, cost savings from cuts in middle-level management, and a normalization of online retail on the Internet that meets or exceeds Forecast for the fourth quarter and holiday season.
At the same time, the investment bank also identified potential risks. These are the impact of new tariffs on volumes and margins, investments in new areas like Project Kuiper that could stifle margin progress, and elevated expectations and potential margin pressure for AWS.
Increased competition from Walmart (NYSE:), and relatively high valuation compared to Amazon’s historical price and price-to-earnings ratios were also highlighted. Furthermore, with 79 Buy ratings, Amazon appears to be a consensus favorite stock, which may present its own set of challenges.
Regarding tariffs, media reports indicate that no new tariffs will be signed on President Trump’s first day in office. Instead, the administration plans to issue a broad trade memorandum to study potential reforms with China, Mexico and Canada.
In light of these pros and cons, BOFA slightly lowered its 2025 estimates for Amazon due to the recent US dollar appreciation, reducing international revenue forecasts by approximately $7 billion. This adjustment is partially offset by slightly higher AWS margins.
For 2025, BOFA estimates revenue/profit/GAAP of approximately $700 billion/$79.5 billion/$6.10, down slightly from $707 billion/$79.9 billion/$6.13. Even with these adjustments, BOFA still expects Amazon to show greater year-over-year revenue growth in the first half of 2025 and better margin expansion relative to larger peers.
Analysts led by Justin Post said in a note:
