Why Did Goldman Sachs Add Amazon To Its Conviction Buy List?

In a note released early Wednesday morning, Goldman Sachs analyst Heath Terry explained why the firm has added Amazon.com AMZN to its Conviction Buy list, while lowering the price target from $430 to $400.

Terry wrote, "the ongoing investment in fulfillment and infrastructure will widen Amazon's competitive lead through initiatives such as Fresh, AWS, digital media, and faster fulfillment and product availability, driving incremental growth and, ultimately, profitability."

When it comes to Amazon's margins, Terry noted that "context is critical." What he meant was while Amazon's capital expenditures have increased by a multiple of ~10 over the last few years, the company has consistently been among the highest in the internet sector for return on investment capital.

Looking forward, Terry is optimistic about the company's investment into AWS, fresh and hardware based on the high margins those businesses can produce at scale. However, he sees the acceleration of the company's electronics and general merchandise as more representative of the direction of Amazon's core retail business.

Following the release of this note, shares of Amazon have traded up about one percent in the pre-market.