By Senad Karaahmetovic
Morgan Stanley equity strategists have reduced their position in Amazon (NASDAQ:AMZN) amid growing competition for its Amazon Web Services (AWS). Moreover, analysts are worried about a potential slowdown in advertising.
The investment bank increased its Amazon position in August 2020 with shares down about 40% in the meantime.
"For such a dominant company, it is surprising how much AMZN has underperformed," MS strategists wrote in a client note.
Morgan Stanley is also worried about FY24 estimates that assume an acceleration in AWS growth, which "appears aggressive as MSFT is catching up and GOOGL is now a strong third player as large enterprise software customers cut back on growth and expenses."
"The tailwind from advertising (which is mostly profit) should diminish going forward as streaming firms enter the ad market, other retailers pursue ad sales on their ecommerce sites and smaller websites and services such as ride share chip away at the margin, leading to more price competition for ads among the big incumbents," it is further said in a client note.
Overall, Morgan Stanley remains positive about Amazon, but it is less confident it beats the Russell 1000 Growth (RLG) index and sees better risk/reward opportunities in more defensive, less volatile names.
Elsewhere, Morgan Stanley's investment strategists added a position in Domino's Pizza (NYSE:DPZ) and increased a position in Halliburton Company (NYSE:HAL).