Since Amazon (NASDAQ:AMZN) When the company released its Q2 report on August 1, the stock underperformed the NASDAQ, up less than 2%, while the tech-heavy index gained over 7%.

According to Wedbush analyst Scott Devitt, the subdued sentiment is due to initiatives such as Project Kuiper – Amazon's plan to build a satellite network that will provide fast, low-latency internet access to underserved regions around the world – and the costs associated with them.

But while Devitt acknowledges that the Kuiper project will require significant long-term investments, the analyst believes the impact on near-term profitability will be “modest.” Devitt expects Kuiper-related operating expenses to be approximately $338 million in 2H24 and approximately $900 million in 2025, representing less than 0.4% of its total 2025 operating expense estimate.

“We expect associated operating costs to increase gradually as launch and manufacturing costs are likely to be capitalized (we estimate a 7-year useful life) and the launch schedule continues to be delayed with the first full Kuiper launch from 4Q24 1Q25 will be postponed,” the 5-star analyst continued:

While Kuiper has been the focus of investor attention, Devitt notes that margins will improve over the long term as the revenue mix continues to shift toward higher-margin advertising and AWS revenue. This transition is expected to generate billions of dollars in “additional profits” annually, with advertising and AWS combined accounting for more than 31% of total revenue by 2029, up from around 26% in 2024.

“The shift in Amazon's revenue mix, combined with continued cost efficiencies in its core retail business (automation, regional fulfillment, inbound optimization) and the expansion of Amazon's off-platform fulfillment network via Supply Chain by Amazon, will drive sustainable operational growth “We expect operating income to increase at approximately 20% CAGR over the next five years, outperforming both Alphabet (+12.7%) and Meta (+13.0%),” the analyst explained his reasoning.

In the here and now, Devitt believes the risk-reward paradigm is attractive as investor expectations for second-half profitability have fallen, AWS growth is accelerating, and advertising momentum is gaining strength through 2025.

“We believe investors should take advantage of this period of relative underperformance,” the analyst concluded, giving AMZN an “Outperform” (i.e. “Buy”) rating with a price target of $225. If Devitt's forecast holds true, investors could see a 22% gain next year. (To view Devitt's track record, click here)

That's hardly a controversial assessment from Wall Street, as 44 other analysts join Devitt in the bull camp, all against just 2 Holds, resulting in a Strong Buy consensus rating. The average target is $224.38, largely mirroring the Wedbush analyst's target. (See Amazon stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is for informational purposes only. It is very important to do your own analysis before investing.