DA Davidson on Friday downgraded its view of Amazon to Neutral from Buy, with analyst Gil Luria arguing that the company is "losing the lead" in cloud computing and facing early signs of strategic weakness in an AI-driven retail environment.
The broker also cut its price target to $175, saying Amazon is "now scrambling to catch up through escalating investment." Luria highlighted a difficult competitive backdrop for Amazon Web Services (AWS), noting that although AWS grew 24% year over year, rival cloud platforms are expanding faster: "Google Cloud accelerated to 48% growth and Azure grew an allocation-constrained 39%."
Beyond growth rates, the note points to gaps in Amazon's AI positioning. Luria emphasized Amazon's lack of an in-house frontier AI lab, which the analyst contrasted with Google's capabilities, and the absence of a primary partnership with OpenAI similar to Microsoft’s arrangement. Those differences, the firm said, are influencing customer preference and accelerating competitive pressure.
DA Davidson warned that falling behind in frontier AI will push Amazon into heavier spending. The note references Amazon’s more than $200 billion in capital expenditures and suggests the company "may not have a choice but to follow through with a $50B investment in OpenAI" to remain competitive in frontier models.
On the retail side, Luria expressed concern about Amazon’s ability to adapt to what he characterized as a "new chat-driven Internet dominated by Gemini and ChatGPT." The analyst argued that without direct integrations into leading AI models, Amazon risks a "structural disadvantage," adding that merchants who are integrated into those models could secure a material edge in traffic and advertising.
DA Davidson’s note reiterated recent company results: Amazon reported fourth-quarter revenue of $213.4 billion, up 13.6% year over year, and AWS revenue rose 23.6% in the quarter. For the first quarter, Amazon guided revenue to a midpoint of $176 billion, implying roughly 13% year-over-year growth.
Context for investors
- Rating change and lower price target reflect concerns about competitive dynamics in cloud and AI, and potential for increased capital deployment.
- Cloud growth comparisons presented by the firm show faster expansion at Google Cloud and Azure relative to AWS.
- The firm sees strategic disadvantages for Amazon Retail if it lacks direct ties to leading AI models, which could shift traffic and advertising benefits to merchants on those platforms.