Baird analysts have slightly increased their price target for Amazon (NASDAQ:AMZN) shares to $213 from $210 following a reassessment of the margin outlook for the e-commerce and cloud giant.

The investment firm predicts that Amazon Web Services (AWS) margins might contract later this year and into 2025. They attribute this potential contraction to higher operating expenses needed to support new data centers and infrastructure, an increasing mix of lower-margin generative AI (GenAI) workloads, and a likely resumption of net headcount additions. The analysts suggest that GenAI workloads are not yet significantly contributing to revenue, projecting AWS revenue to grow at a mid-to-high teens percentage CAGR from 2024 to 2027.

Baird also forecasts that North American Retail margins, excluding advertising, will revert to low single-digit percentages over the next two years, while International Retail is expected to achieve sustained profitability within the next two to three years. Conversely, advertising is anticipated to continue providing a strong margin boost.

Based on these revised assumptions, the analysts are raising their consolidated operating margin and earnings estimates for 2025 and 2026 above the consensus, while keeping revenue projections unchanged.