E-commerce giant Amazon (NASDAQ:AMZN) is a hot ticket on Wall Street.
Shares of the company surged 3% on Tuesday to a new record of $701 a share, after trading above $600 for the first time since last October.
The advance came after portfolio manager and investment research firm Bernstein boosted its price target on Amazon from $770 a share to $1,000 – the highest on the Street for the company. Bernstein analyst Carlos Kirjner said he sees Amazon’s margins continuing to expand at a faster clip than expected – more rapidly in the next two years than they have in the prior two. Kirjner said in a note that Amazon doesn’t trade “anywhere near” what he believes it’s worth on a fundamental basis.
“We think consensus estimates are shockingly low in the next two to three quarters, and even lower four to six quarters out,” Kirjner said.
In its first-quarter results, Amazon said it expects net sales to be between $28 billion and $30.5 billion, and between 21% and 32% increase from the second quarter of 2015.
To hit Bernstein’s price target, shares of Amazon would need to jump more than 40% from Tuesday's trading levels.
"What Bezos did to retail, he'll do to IT spend."
At $1,000 a share, Amazon would be the third-largest U.S. listed company, according to Thomson Reuters data, ranking just below Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL), Google’s parent company.
While some might view Bernstein’s forecast as aggressive, the firm isn’t alone in thinking Amazon shares could march higher. At the 21st annual Sohn Investment Conference in New York last week, Chamath Palihapitiya, venture capitalist and founder of Social Capital, said he sees Amazon as a “multi-trillion-dollar monopoly hiding in plain sight.”
By 2025, Palihapitiya said Amazon retail will be a $1 trillion business, while Amazon Web Services, its cloud division, will reach $1.5 trillion.
“There will be an unbelievable number of losers as AWS gets to scale,” he said during his presentation at New York’s Lincoln Center. “What [Amazon CEO Jeff] Bezos did to retail, he’ll do to IT spend.”
Amazon Web Services, which launched in 2006, looks to provide companies with storage, database, analytics, and help lower IT costs and scale applications. Amazon’s CFO, Brian Olsavsky, said on the first-quarter earnings call AWS is now a $10 billion business, but he cautioned that while the company is pleased with the growth, it’s still volatile.
“We came in at 23.5% operating margin on a – the new basis including stock-based compensation and other…but stepping back with the 64% growth in AWS…I would caution you that we’re pleased but it is very early to start drawing too many conclusions on the long-term margins in this business. They’ll be bumpy over time,” he said.
Olsavsky cited several reasons for potential margin volatility within the AWS business including global expansion, price reductions, and efforts to drive cost efficacies.
Amazon was the biggest gainer on both the S&P 500 and the Nasdaq 100 on Tuesday. Shares have risen more than 57% over the last 52 weeks.