Wells Fargo Drops the Hammer and the Irony on Amazon Downgrade (Shares Plunge -3%)

Well, if irony were a currency, Amazon could probably buy our boy, Jeff Bezos, ten more yachts to take explicit selfies of himself on. (Aaaaand with that comment, my Amazon Prime packages will probably get mysteriously damaged). 

(Source: Giphy) 

In short, Amazon shares took a 3% nosedive on Monday after Wells Fargo’s Ken Gawrelski downgraded the stock from Overweight to Equal Weight. The reason? It all comes down to a classic one-two punch of increased competition and an antitrust case from U.S. regulators (hence, the irony coming from Wells). 

(Source: Yahoo Finance) 

Meaning, according to Gawrelski, Amazon’s stock is no longer the shining beacon of endless upward revisions - leading Wells to cut its price target from $225 to $183, citing a slew of challenges Amazon’s going to have to face in the coming months. Now sure, AWS is still the golden child, but apparently, that’s not enough to carry the weight of Amazon’s other, less glamorous endeavors.

Among the hurdles? Increased competition from Walmart (the IRL Amazon), rising costs from its satellite broadband project (aka. Project Kuiper), and the cooling effect of ad sales on Amazon’s operating income. All of this has Wells Fargo analysts sweating a bit more than usual, and they’re not the only ones with a case of cold feet. 

(Source: CNBC) 

You see, Amazon’s biggest threat on the horizon is Walmart’s fulfillment services. Yeah, the company that made “everyday low prices” a thing is now offering fulfillment services to sellers that are 15% cheaper than Amazon’s Fulfillment by Amazon (FBA). Oof. That means if Amazon wants to remain competitive, it’ll probably have to lower its own fees, which, you guessed it, cuts into that sweet, sweet retail income.

(Source: Giphy) 

In addition, Gawrelski also threw shade at Amazon’s Project Kuiper, the satellite broadband initiative that’s trying to compete with SpaceX’s Starlink. Apparently, Kuiper is set to shave a cool $3 billion off Amazon’s operating income in 2025 and 2026. So, if you were hoping for lightning-fast internet beamed down from space via Amazon, just know it’s coming at a hefty price.

On the other hand, AWS (Amazon Web Services) is still Amazon’s MVP, bringing in $26.3 billion in revenue last quarter, up 19% from the previous year. But, but, but… while it’s making bank on AI services and cloud computing, Wells Fargo is basically saying, “Yeah, that’s great, but it’s not going to save you from everything else.”

(Source: Bloomberg) 

Meaning, even though AWS might be the belle of the ball (laying in the middle of all the AI carnage we’ve seen this year), it simply can’t carry Amazon’s entire empire on its back in the long-term. Especially when ad sales, which used to be a strong contributor to Amazon’s operating income, are expected to cool off through 2027.

(Source: Giphy) 

Plus, if all of that wasn’t enough, the Federal Trade Commission’s antitrust case against Amazon is moving forward. ICYMI, this is a not-so-casual lawsuit accusing Amazon of body-bagging competition and being generally too big for its own good (you know, like Google). And while some of the claims from states like New Jersey and Pennsylvania were dismissed, the FTC isn’t backing down - resulting in more pressure on Amazon’s stock, potentially eating into its girthy 20.59% YTD and 40.96% over the past 12 months gains. 

So with that said, what’s next for Amazon going forward? Well despite the downgrade, the King of Shadiness (Wells Fargo) isn’t completely throwing in the towel. They see Amazon beating expectations for the third quarter, with earnings per share projected to hit $1.26—higher than the $1.15 consensus. But with Walmart breathing down its neck and Project Kuiper burning through cash, Amazon’s “positive revision story” is on pause. For now, at least.

(Source: Giphy) 

In the end, sure, Amazon may still be up 40% over the past year (again, credits to AI), but with a 3% drop on Monday and a rare downgrade, things are definitely looking bleak for the rest of the week. Especially since Grandpa Powell (likely) won’t be blessing us with any more rate cuts going forward… thanks to the 254,000 jobs that were added in September. 

In the meantime, keep an eye on Amazon as this may lead to a “BTFD” opportunity for all you call option degenerates, but regardless of what unfolds - stay safe and stay frosty, friends! Until next time… 

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Stocks.News holds positions in Amazon and Google as mentioned in the article.