Wells Fargo Investment Institute is getting more bullish on Amazon as the e-commerce retailer’s Amazon Web Services and North American retail segments “near inflection points.” Analyst Lawrence Pfeffer added the company to the firm’s focus list as it returns to normalizing operating conditions and braces for a potential 174% uptick in free cash flow between 2023 and 2025. The e-commerce stock replaces O’Reilly Automotive . Wells Fargo Investment Institute’s focus list aims to beat the S & P 500 over a roughly one-year period on a total return basis. “We still believe the macro could cause noise, but we also believe this is causing Amazon to watch its capital expenditures more closely overall too, while also focusing on keeping inventory tight on the retail side, which is now easier to do given normalized supply chain conditions,” he wrote in a Tuesday note to clients. AMZN YTD mountain Shares have rallied more than 65% this year Amazon shares have rallied more than 65% this year. The stock surged more than 8% on Friday on the back of its biggest earnings beat since the fourth quarter of 2020. Amazon also issued optimistic guidance. Key to Wells Fargo’s increasingly positive stance are a reacceleration in growth at AWS after a multiquarter period of weakness and better commentary from management defining its generative AI goals. While technology budgets for companies may remain under pressure in the near-term, the firm said it’s also been “positively surprised” by commentary from AWS surrounding recent customer activity. “More importantly, we see re-acceleration in growth, even a modest one, in core AWS functions over the next few years as a key catalyst for the stock,” Pfeffer wrote. Wells Fargo is also gaining more confidence in Amazon’s retail business in North America, as it builds up regional utilization and benefits from lower transportation rates and shipping costs. The push for faster delivery times and frequency should also boost its retail business, Pfeffer added. “Put simply, broader availability of high purchase frequency items with same-day delivery times means more vans with more packages to deliver in the same neighborhood,” he wrote. ” The last mile in parcel delivery is traditionally the most expensive and we believe the return of more positive momentum is key here.” — CNBC’s Michael Bloom contributed reporting
