**Wells Fargo Downgrades Amazon Amid Market Challenges**

Amazon's stock experienced a dip of 3% on Monday following a downgrade from Wells Fargo analysts, who expressed concerns that the company's robust performance in the cloud services sector wouldn't be enough to offset various obstacles impacting its profit margins. Analyst Ken Gawrelski revised the stock rating from Overweight to Equal Weight and lowered the price target from $225 to $183.

Gawrelski highlighted several challenges facing Amazon, including increasing competition from Walmart, a tempered contribution from its advertising business to its operating income, and the significant costs associated with its satellite broadband project. Despite these issues, he acknowledged that Amazon's story remains one of margin expansion, albeit at a slower pace than the market initially anticipated.

The downgrade makes Gawrelski one of the few analysts on Wall Street who do not recommend buying Amazon stock. He predicts the shares will reach $187 within the next year, in contrast to Bloomberg's consensus estimate, which anticipates a rise to around $220.

Amazon's latest earnings report from early August did not meet Wall Street’s expectations. Nevertheless, the strength of its Amazon Web Services (AWS) division—responsible for $26.3 billion in revenue during the second fiscal quarter—helped balance weaker retail sales growth. AWS revenue exceeded forecasts and showed a 19% year-over-year increase, while the advertising segment also saw a significant 20% surge in revenue, though still falling short at $12.8 billion for the quarter ending June 30.

Wells Fargo's outlook suggests that despite Amazon's gains in AI and cloud services, these advancements won't fully counterbalance issues in other segments. The rising competition from Walmart’s fulfillment services, which are about 15% cheaper, pressures Amazon to adjust its merchant fees, potentially reducing its retail income. Additionally, Amazon's Project Kuiper, aimed at rivaling SpaceX’s Starlink by offering satellite broadband, is projected to lower operational income by $3 billion in 2025 and 2026. Advertising revenues are also expected to grow at a slower rate between 2025 and 2027.

Nonetheless, Wells Fargo remains optimistic about Amazon's upcoming performance, raising its third-quarter earnings per share forecast from $1.18 to $1.26, surpassing the consensus estimate of $1.15.