Amazon Downgraded by Wells Fargo Amidst ‘Positive Revision Story on Pause’

Wells Fargo has downgraded Amazon to Equal Weight from Overweight, citing several challenges that may hinder the company’s positive earnings momentum. In a recent report, the bank also reduced its price target for Amazon shares from $225 to $183, indicating difficulties that could restrict operating income (OI) growth until 2027.

While Amazon Web Services (AWS) continues to perform well, Wells Fargo noted it might not be sufficient to foster positive earnings revisions in the near future. Various factors, including investments in Project Kuiper, pressures from Fulfillment by Amazon (FBA) fees, and declining contributions from advertising, are anticipated to impact Amazon’s earnings growth.

The bank cautioned that margin expansion might be limited in the first half of 2025, and that significant positive revisions are unlikely until the company presents its guidance in July 2025. The report stated, “While the market seems prepared for reduced OI in the fourth quarter, we warn that margin growth may also encounter limits in early 2025.”

Wells Fargo revised its OI estimates for Amazon downward by $5.4 billion, $4.5 billion, and $5.5 billion for the years 2025, 2026, and 2027, respectively, citing slower monetization of merchant services and advertising as key factors. The firm emphasized that although Amazon remains focused on margin expansion, the pace is likely to be slower than currently anticipated.

Additionally, the report highlighted rising competition from Walmart, which has started offering fulfillment services at prices 15% lower than Amazon’s FBA. Wells Fargo believes that Walmart’s expanding fulfillment capabilities could put additional pressure on Amazon’s fees and merchant services.

Given these challenges, Wells Fargo perceives limited short-term visibility into Amazon’s earnings recovery, prompting the downgrade in both price target and stock rating.