There Is A 50% Upside Potential For This Mega-Cap Technology Stock, According To Morgan Stanley

According to Morgan Stanley, Amazon's most recent employment layoffs should increase the company's profitability.

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Amazon is still a top choice, according to analyst Brian Nowak. His $150 price objective suggests an increase of 52.9% over Friday's closing price for the significant technology stock.

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The e-commerce company would eliminate 9,000 jobs from its cloud computing, human resources, advertising, and Twitch livestreaming departments, according to CEO Andy Jassy's internal message to colleagues last week. This comes after a previous cycle that saw the elimination of more than 18,000 jobs.

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Given that it was one of the company sectors Nowak claimed he thought was targeted in the most recent round, the profitability of the company may benefit specifically from this. He predicted that the reduction will increase Amazon Web Services' earnings before interest and taxes in the second quarter and for the entire 2023 fiscal year by around 100 & 50 basis points, respectively. According to him, the EBIT margin should increase by about 75 basis points in 2024.

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"We anticipate a majority of cuts are from AWS/Advertising," he said in a letter to clients on Sunday. "This should help safeguard AWS EBIT during a near-term downturn and provide improved long-term leverage.".

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When combined, Nowak claimed that Amazon's layoffs represent about 8% of its white-collar staff, as opposed to 24% at Meta and 6% at Alphabet's Google. According to Nowak, the initial round of cuts mostly affected lower-paid positions, so the most recent ones may result in greater average employee savings.

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The reductions should result in a 5% and 6% improvement in the company's EBIT in 2023 and 2024, correspondingly, to $1.1 billion and $2.1 billion.

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In premarket trading, Amazon gained almost 1%. The stock recovered after falling by nearly 50% in 2022, rising by 16.8% since the beginning of 2023.