Mizuho analyst James Lee believes Street’s consensus for the growth of Amazon’s cloud business is too optimistic as far as the second quarter is concerned.

The market expects Amazon Web Services (AWS) to grow 13% year-over-year while Lee believes this business unit is likely to grow 7.5%. Moreover, Lee says that the 2H23 rebound could be shallower than Street expectations.

“We also view consensus AWS OPI for FY23 roughly 7% too high,” Lee said in a client note.

As a result, the analyst cut FY23E AWS revenue growth from 16% to 10% YoY, below Street’s 13%. On the other hand, the analyst raised retail operating margins by 70 basis points to -0.6% “to reflect improving margins from Prime Video and the most recent round of headcount reductions.”

“Keep in mind we believe macro issues for AWS are short-term, not structural, so we maintain our Buy rating and $135PT, or 14x our FY24E EBITDA. In the meantime, the stock could be volatile near-term from potential downward revisions in AWS,” Lee added.

Amazon shares are up 23% year-to-date (YTD).

By Senad Karaahmetovic