Amazon downgraded as AWS ‘loses its lead,’ DA Davidson warns

Investing.com — DA Davidson cut its rating on Amazon to Neutral from Buy in a note Friday, with analyst Gil Luria arguing the company is “losing the lead” in cloud computing and showing early signs of a strategic disadvantage in a rapidly changing, AI-driven retail landscape.

The firm also lowered its price target to $175, saying Amazon is “now scrambling to catch up through escalating investment.”

Luria believes AWS continues to compare unfavourably with Microsoft Azure and Google Cloud. While AWS grew 24% year over year, the firm noted that “Google Cloud accelerated to 48% growth and Azure grew an allocation-constrained 39%.”

The analyst noted that Amazon’s lack of an in-house frontier AI lab, unlike Google’s, and its lack of a primary partnership with OpenAI, like Microsoft’s, are also contributing to a shift in customer preference.

The firm warned that falling behind is pushing Amazon into heavier spending. DA Davidson highlighted the company’s more than $200 billion in capital expenditures and said Amazon “may not have a choice but to follow through with a $50B investment in OpenAI” to remain competitive in frontier models.

Luria also expressed concern about Amazon Retail’s ability to adapt to a “new chat-driven Internet dominated by Gemini and ChatGPT.”

Without direct integrations, the analyst stated that Amazon risks a “structural disadvantage,” adding that merchants integrated into leading models could gain a material edge in traffic and advertising.

Amazon posted fourth-quarter revenue of $213.4 billion, up 13.6% year over year, with AWS revenue rising 23.6%. The company guided first-quarter revenue to a midpoint of $176 billion, implying 13% growth.

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