Shares of Etsy (ETSY) are on the rise after Loop Capital analyst Blake Harper upgraded the stock to Buy, saying the company has managed to accomplish the rare feat of fending off competition from Amazon (AMZN) and maintain its dominant position with handmade goods.

DOMINANT POSITION: In a research note to investors this morning, Loop Capital's Harper upgraded Etsy to Buy from Hold, saying the company has done something most online and brick-and-mortar retailers have not, namely fend off competition from Amazon and maintain its dominant position with handmade goods. Despite launching in October 2015, Handmade by Amazon has over 650,000 product listings compared to Etsy's 43M, Harper noted. Furthermore, based on comments from Etsy sellers, the analyst pointed out he does not expect Amazon to be able to attract a "meaningful share" of Etsy shops and products. For many artisans, Amazon's 15% cut of each product sold on Handmade by Amazon is difficult to justify versus Etsy's 3.5% fee and 20c product listing, he added. Nonetheless, Harper acknowledged that the e-commerce giant has still managed to quickly grow its product listings and cannot be discounted given its ability to iterate and invest over the long-term. Etsy, however, has "mitigated the impact well" and is poised for stronger growth, he argued.

ARTIFICIAL INTELLIGENCE: Loop Capital's Harper also noted that Etsy's artificial intelligence investments should help user experience with search, conversions and eventually gross margins. Etsy sellers have been able to improve their search rankings by updating their product listings with more descriptive labels, the analyst contended, adding that he expects the company to use its newly acquired search and recommendation engine to improve purchase conversations.

RARE FEAT IN RETAIL: On Wednesday night, both Kohl's (KSS) and Macy's (M) announced sales slumps for the holiday period and cut their guidance for 2016. In the wake of the news, Macy's was downgraded at Deutsche Bank to Hold from Buy, with analyst Paul Trussell saying the "discouraging" forecast reflects the "realities of market share losses" to off-price retail, Amazon and other online threats. Meanwhile, Amazon said last week that it had its "best ever" holiday season, and noted that it shipped more than 1B items worldwide.

PRICE ACTION: In morning trading, shares of Etsy have gained about 2.5% to $12.28.