Dubbed the “Magnificent Seven” by Bank of America (BAC) strategist Michael Hartnett, tech giants Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA), Amazon.com (AMZN), Meta Platforms (META), Microsoft (MSFT), and Tesla (TSLA) emerged as leaders of the bull market that kicked off early in 2023, sparked by massive enthusiasm over the generative AI boom. Despite notable underperformance this year in names like TSLA, an ETF tracking the group has surged 48% over the past 52 weeks, compared to the S&P 500 Index’s ($SPX) 22.7% rise.
Among this elite group, one analyst says AMZN stock could be set to soar higher, fueled by its live-streaming platform, Twitch. In a recent note, Needham’s Laura Martin said she sees the upstart YouTube rival as Amazon’s $46 billion “hidden gem.” Martin upped AMZN’s target price to $210, encouraged by expanding service margins, particularly from Twitch and artificial intelligence (AI) ventures that are enhancing Amazon’s overall value.
With the mega-cap stock sporting double-digit upside potential to Wall Street’s mean price target, now might be a prime moment for investors to consider AMZN stock. Let’s take a closer look.
About Amazon Stock
Washington-based Amazon.com, Inc. (AMZN), founded in 1994, boasts a staggering $1.9 trillion market cap. This e-commerce giant has transformed into a global tech powerhouse, dominating retail and branching into entertainment with Prime Video, Amazon Music, Prime Gaming, and Twitch. Amazon Web Services (AWS) spearheads enterprise cloud solutions and AI, showcasing its tech prowess. With logistics, smart home devices, and even healthcare ventures, Amazon continues to redefine industries, proving that its ambitions extend far beyond its online retail roots.
The tech giant’s stock has been on an impressive climb. Shares of Amazon have rallied 43% over the past 52 weeks and climbed 21.2% on a YTD basis, compared to the SPX’s 22.5% and 16.5% returns over the same periods, respectively.
With AMZN down about 9% from the highs set earlier this month at $201.20, this pullback could be shaping up into an attractive buy-the-dip opportunity for investors looking to capitalize on the next leg higher.
Priced at 38.96 times forward earnings, the stock trades at a discount to its own five-year average of 182.15x.
Amazon Beats Q1 Earnings Projections
On April 30, Amazon reported its Q1 earnings results, which surpassed Wall Street’s projections. While revenues climbed 12.5% annually to $143.3 billion, its adjusted EPS of $1.13 exceeded forecasts by 36.1%.
Amazon’s hefty free cash flow, which hit $50.1 billion during Q1, fuels its AI ventures and acquisitions. With $54 billion in cash, cash equivalents, and restricted cash, Amazon’s balance sheet remains rock-solid, ready for more strategic growth.
Prime Day 2024 was a blockbuster for Amazon. From July 16 to 17, Prime members snagged epic deals on top brands. On July 18, Amazon announced record sales, making it its biggest Prime Day ever. Independent sellers, mainly small and medium-sized businesses, sold over 200 million items in just 48 hours, marking an unprecedented success. Plus, Amazon’s new AI assistant, Rufus, also played a key role, guiding millions through the shopping frenzy.
The company is expected to report its Q2 earnings results on Thursday, Aug. 1. For fiscal Q2, management anticipates net sales between $144 billion and $149 billion, marking an annual growth rate of 7% to 11%. Operating income is projected to be between $10 billion and $14 billion. Analysts tracking Amazon expect its EPS for the quarter to increase 61.9% year over year to $1.02.
Over the longer term, analysts project fiscal 2024 profit to reach $4.72 per share, up 66.2% year over year, and rise another 22.9% to $5.80 per share in fiscal 2025.
Amazon’s Hidden Gem
In 2014, Amazon acquired Twitch for $970 million, a strategic move to tap into the live-streaming wave. Fast forward almost a decade to 2023, and Twitch – now established as the vanguard of real-time video streaming – is generating approximately $3 billion annual revenue. While Twitch’s vibrant community of gamers, creators, and influencers drives its popularity, it is also a secret weapon in Amazon’s broader strategy.
With millions of viewers tuning in live and Twitch fostering a unique advertising niche, this platform is far more than just a gaming haven – it is a goldmine of untapped potential in the digital landscape. Twitch remains a key player in Amazon’s growth, capturing a slice of the lucrative live-streaming market and drawing in younger audiences, redefining online engagement.
What Do Analysts Expect for Amazon Stock?
Amazon’s e-commerce empire, cloud computing prowess, and Prime Video strategy are well-known - but Needham analyst Laura Martin is shining a light on Amazon’s $46 billion “hidden gem” in Twitch, which she thinks is ripe for a potential spin-off.
Martin wrote, “A key reason that Twitch would be valuable if it were separately traded is because it dominates live-streaming.”
She argues its value transcends direct revenue, with a young, male-heavy user base boosting Amazon’s ecosystem. Twitch’s massive Gen-Z and Gen-Alpha reach transforms it into an advertising hotspot, attracting brands typically uninterested in Amazon. Additionally, Amazon leverages Twitch to enhance Prime Video and music, creating abundant synergies.
Comparing Twitch to Alphabet’s YouTube, Martin highlights their respective niches – YouTube in video on demand, and Twitch in live-streaming. She believes investors might misjudge Amazon’s business, and advocates for valuing Amazon as a services company due to the rapid growth and high margins of that business, which outpaces its core e-commerce business.
Martin’s keen eye on Twitch’s potential led her to raise Amazon’s target price from $205 to $210, indicating expected upside potential of 12.6%, while maintaining a “Buy” rating. This reflects her belief in Twitch’s growing influence and profitability.
AMZN has a consensus “Strong Buy” rating overall. Of the 45 analysts in coverage, 42 recommend a “Strong Buy,” and the remaining three analysts suggest a “Moderate Buy.”
The mean price target of $226.77 suggests an upside potential of 21.6% from the current price levels. The Street-high target price of $250 for Amazon implies that the stock could rally as much as 34.1%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
