According to Piper Sandler, there is one major tech player that is "on the cusp of a margin renaissance."
Piper Sandler analysts made the comment in a note to clients on Thursday, also raising the firm's price target on the stock.
They lifted the price target for Overweight-rated Amazon (NASDAQ:AMZN) to $185 from $175, telling investors that after a second look at comments from Amazon's 2Q earnings call, it suggests to them that the e-commerce and tech giant may have reached a new threshold in shipping & fulfillment cost efficiency.
Piper Sandler sees evidence of this emerging in gross margins and third-quarter incremental operating income guidance, which they stated "was by far the strongest in company history."
With gross margin "looking perky," the 3Q margin guide looking solid and market share gains likely to follow, Piper Sandler believes "now is the time to buy AMZN" as margins are inflecting and AWS growth is troughing. "Share gains should also improve with efficiency," added the analysts.
The firm raised its 2024E operating income forecast for Amazon to $48 billion, up from $38B, due to its greater confidence in the company's margin profile.
"The key point here is we think Street profitability estimates are too low," said the analysts. "On valuation, shares look cheap and essentially trade at a market multiple on NTM EBITDA."
Despite the positivity from Piper Sandler, Amazon shares are down around 1.8% Thursday, trading near the $133 per share level. However, the stock has so far had a stellar year, climbing more than 55% from just above the $81 mark.
Earlier this week, Wedbush analysts started Amazon and other big-name tech giants at Outperform. The company was added to the firm's best ideas list as they believe the "strength of Amazon's core retail business is underappreciated."