Stifel issued the highest Amazon price target on Wall Street Thursday, highlighting the company's continued leadership in e-commerce and cloud services as critical to expectations of wider profit margins.
Analyst Scott Devitt told clients to expect Amazon shares to rally to $2,525 from Wednesday's close at $1,974.85 over the next year. The new target implies more than 27 percent upside and is higher than any other analyst projection, according to FactSet data.
"Amazon is a leader in two large and rapidly growing markets, eCommerce and cloud services," Devitt wrote in a note to clients. "The company is investing in a number of initiatives, including Prime, AWS, India, logistics, video content, and Alexa, which will limit the opportunity for near-term margin expansion."
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"We support where Amazon's investment dollars are focused as we believe this better positions the company for continued market share gains and opportunity for greater margin expansion once the company emerges from the current investment cycle," the analyst added.
Amazon topped $1 trillion in market cap on an intraday basis earlier this month, but has never finished a session above the benchmark. Should Amazon's 487,741,189 outstanding shares rally to Devitt's $2,525 target, the company's market cap would total $1.23 trillion.
Amazon's marked profit expansion has largely been driven by growth in its high-margin businesses such as cloud and advertising. Amazon CFO Brian Olsavsky said in a conference call in July that those two segments were a "big contributor" burgeoning profits as Amazon's traditional web-based retail business delivers thinner margins.
Amazon has posted particularly impressive growth in Amazon Web Services, its on-demand cloud computing platform. The business segment grew nearly 50 percent in the second quarter.
Olsavsky added that more efficient warehouses and data centers have also improved performance as well as the growth of its higher-margin third party marketplace.
The solid earnings and revenue results have prodded Amazon's shares higher, with the stock more than doubling in the past year and sparking overvaluation concerns. Still, Amazon's stock rose 0.7 percent in premarket trading following the Stifel note.
The strong performance has also allowed CEO Jeff Bezos to experiment with new ventures in brick-and-mortar retail, including the 2017 purchase of Whole Foods.
The company opens a new on Thursday store that sells items from its website rated 4 stars or better. The shop is set to welcome customers in New York's SoHo neighborhood and sells a variety of goods ranging from cooking skillets to card games.
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