Amazon celebrates its 30th birthday on July 5, which also marks Andy Jassy's third year as the tech giant's CEO. After a rocky start, Jeff Bezos' hand-picked successor, who joined as a marketing manager in Amazon's early days as an online bookstore, and who took over near the height of the pandemic, has reason to celebrate.
Amazon stock shed $1 trillion in market cap between July 2021 and late 2022, but it's roaring back. A 30% rally this year underlines Wall Street optimism about the company under Jassy's leadership. On Wednesday, June 26, Amazon hit a milestone: a $2 trillion market cap.
The next test is whether Amazon stock can sustain this rally above its summer 2021 highs. Challenges lie ahead for Jassy to navigate. They include new competitors on the e-commerce side, heightened government scrutiny, and fast-moving technology trends like generative AI.
"He's been steering the ship pretty remarkably well given everything that's been thrown at him over the last couple of years," Sky Canaves, senior analyst at Emarketer, told Investor's Business Daily. Despite "the post-pandemic (market conditions), and with the ongoing slump in consumer sentiment, all the economic uncertainty and regulatory challenges Amazon faces, investors are still very bullish."
Amazon Stock Surged After 2022 Slump
That bullishness pushed Amazon to finally recover to record highs. Amazon stock has soared more than 130% since the start of 2023, reaching an all-time intraday high of 194.80 on Wednesday, and again Thursday afternoon at 199.84. That built on a record-high Amazon closing price reached in early April, which was the first for the stock since July 2021, spanning nearly all of Jassy's tenure.
Jassy took over as Amazon's CEO on July 5, 2021. Few leadership roles in corporate America are more prominent. Amazon is the largest e-commerce company in the world. Its Amazon Web Services division is the dominant cloud computing platform. Amazon's $574.8 billion in 2023 revenue makes it America's second-biggest company by sales, behind only Walmart.
An Amazon veteran of more than two decades, Jassy wasn't exactly a household name when he was selected. Still, he led the company's important Amazon Web Services cloud business. Founded in 2006, AWS is a global computing powerhouse and a key business that allowed Amazon to return to churning out profits.
It was never going to be easy to follow Bezos, who built an online bookstore into a global tech conglomerate. Jassy inherited a tricky hand.
'Rocky Start' For Amazon CEO Andy Jassy
At the time of the transition, Amazon stock was trading near all-time highs. The pandemic powered huge revenue gains for its e-commerce business, while AWS was still growing rapidly and pumping out profits. But then the market environment rapidly changed.
A slowdown in online shopping exposed an overbuild along its fulfillment network. AWS growth eventually began to slow as the first "real recession" in cloud computing set in.
"The first year was a rocky start, and many people quickly questioned whether Jassy was the appropriate person for the job," CFRA analyst Arun Sundaram told IBD. "However, I don't think that blame was really justified since many of the issues facing Amazon were due to pandemic-related decisions made prior to Jassy becoming CEO."
Amazon Stock Joins The 'Magnificent Seven'
Last year marked a turnaround, with Amazon stock gaining more than 80%. Jassy made significant cost cuts, including 27,000 layoffs, and jettisoned some of Amazon's experimental businesses, including physical bookstores. He reorganized Amazon's delivery network into a regional model, designed to act more efficiently.
"He was able to slowly narrow e-commerce losses in 2022 and turn the e-commerce business into a profit (creator) in 2023," CFRA's Sundaram said.
Meanwhile, cloud revenue growth "took time to turn around, but now growth in the AWS business has begun to reaccelerate, while e-commerce profit margins continue to expand," Sundaram added.
Maxim Group analyst Tom Forte said Jassy's vision appears focused on further driving Amazon's service businesses, including AWS, advertising and its third-party seller marketplace.
"The benefit of being a services company is that it's a higher-margin business," Forte told IBD. "But I also think that (Jassy) has done a good job of being aggressive in managing expenses. And we're starting to see the fruits of his labor."
Amazon Stock: Q1 Earnings Beat Expectations
Forte pointed to Amazon's first-quarter earnings, released in late April.
The tech giant posted a 10% operating margin for the first three months of 2024 — its first quarter with double-digit margins in the company's history.
Further, Amazon reported a stronger-than-expected 216% year-over-year earnings increase to 98 cents per share. Sales grew 13% to $143.3 billion, led by Amazon's advertising, cloud and third-party seller services.
Amazon is boosting spending to pursue generative AI and expand its retail business. But analysts still project the company's free cash flow will reach a record $62 billion for all of 2024, according to FactSet estimates. That's after free cash flow turned negative in 2021 and 2022.
Jassy told analysts he believes the company can boost profits while investing in new opportunities — a shift from a history of occasionally trading profits for growth.
"Amazon is generating record profits, and using those profits to fund the next leg of growth," Igor Tishin, an information technology analyst at asset manager Harding Loevner, told IBD. "Their free cash flow generation has made a spectacular recovery from the challenges of a couple years ago. ... What's not to like?"
Andy Jassy's Approach At Amazon
The fact that Jassy was on the call discussing Amazon's strategy with analysts was a change from his predecessor. Jassy initially kept to Bezos' practice of avoiding earnings conference calls, but he has attended each once since February 2023.
Having leaders directly answering questions and explaining their vision can help a stock, analysts say. "I view it as an example of him iterating and realizing it is better for everyone if he is on the call," Maxim Group's Forte said.
Hired out of Harvard Business School, Jassy served multiple roles early on, in marketing and in Amazon's CD-selling music business. He eventually took on a role described as Bezos' shadow.
"I was in all his meetings, including his one-on-ones at the time," Jassy recounted in an interview with LinkedIn CEO Ryan Roslansky. "We would spend time, pretty much every week, talking about the things that we heard that mattered, and then try to divide and conquer."
IBD could not immediately reach Jassy for an interview.
Jassy's legacy before taking over as chief executive was building Amazon Web Services from a side project to a backbone of the modern internet. In 2023, AWS was responsible for two-thirds of Amazon's $37 billion in operating income, while contributing 16% of the company's total revenue.
"He had already kind of put his stamp on Amazon through AWS, and I think that's what gave Bezos the confidence to put him in the driver's seat," Emarketer's Canaves told IBD.
Amazon Stock Seeks Next Catalyst
Despite plaudits from analysts following the quarterly report in late April, Amazon stock didn't exactly take off. Shares gained a modest 2% the next trading day.
Analysts highlighted some concerns. Management did not announce plans for an investor dividend, declining to follow the recent leads of Big Tech peers Google-parent Alphabet and Meta Platforms. Jassy explained at the company's annual shareholder meeting in May that the company believes the best use of its cash is "investing in the businesses in which we're pursuing."
The stock bounced around after that and even notched a couple of record closes. But Amazon stock's recovery lagged some other Magnificent Seven stocks, such as Nvidia, Microsoft, Alphabet and Meta Platforms, which all entered record territory last year or early this year.
So far, Jassy has helped guide Amazon through its post-pandemic mess. Now the challenge is pushing Amazon stock into new high territory.
Wednesday's strong move buoyed hopes. The nearly 4% rise in Amazon stock marked a breakout from a flat base and left the price within the 5% buy zone, which runs to 201.29. Will Amazon shares continue to rise?
Generative AI: Amazon Vs. Microsoft
The biggest challenge for Jassy may be steering Amazon into the generative AI era. Amazon is by far the largest provider of cloud services in the world, a market that analysts expect will increasingly be driven by AI spending.
"Generative AI may be the largest technology transformation since the cloud (which itself is still in the early stages), and perhaps since the Internet," Jassy wrote in a letter to shareholders on April 11.
The letter outlined his broader vision for Amazon to power what Jassy sees as three separate layers of generative AI. At the base layer, AWS will provide computing power and custom chips to train AI algorithms at a lower cost. The middle layer will offer a secure space for enterprises to work with those algorithms, and the top layer will include applications that are powered by artificial intelligence.
Earlier this year, Amazon completed a $4 billion investment in Anthropic, an OpenAI rival.
Shortly after Jassy's shareholder letter published, Amazon stock broke through and closed at a record high for the first time since July 2021.
But there are some investor concerns, including the costs of an AI buildout. Plus, Amazon's chief rival Microsoft has a flashy partnership with OpenAI, whose ChatGPT product helped jump-start interest in generative AI technology late in 2022.
"Microsoft has more attractive offerings on the application layer that appeal to both business and consumer clients," Harding Loevner's Tishin told IBD. "AWS has to catch up."
Amazon Stock: The AI Factor
The AI frenzy is exploding at a time cloud spending is bouncing back from a cool-down, and analysts expect it to boost sales. AWS revenue growth slowed from 28% in 2022 to 13% in 2023. Analysts expect growth to accelerate to 18% this year, taking sales to $106.8 billion, according to FactSet.
Generative AI is helping that growth. Jassy told analysts in late April that AWS had already reached a "multibillion-dollar" revenue run rate related to artificial intelligence.
To CFRA analyst Sundaram, Amazon has the right products and services for generative AI but could be marketing them better to both customers and investors.
"I think the focus for Jassy over the next year will be to catch up to Microsoft in the generative AI race, at least based on investor perception," Sundaram told IBD. "That's how I see the stock building on its gains."
AWS recently underwent a leadership shake-up, with former sales and marketing leader Matt Garman taking over as CEO on June 3.
Also, generative AI could soon recharge one of Amazon's most famous household products: Alexa. Jassy wrote in his shareholder letter that a "more intelligent and capable Alexa" is on its way. That could include a subscription tier for the most advanced version of the product, Reuters reported.
Amazon Growth Businesses
Amazon can be a tough business to nail down, with operations ranging from health care to movie studios to self-driving cars and satellite internet. In the shareholder letter, Jassy highlighted generative AI, the grocery business, Prime Video and health care as potential growth areas.
But e-commerce retail and AWS will always be the stars of the show. On the retail side, Jassy has focused on delivering items more quickly and at a lower cost. A regional-focused redesign of Amazon's vast fulfillment network helped it deliver nearly 60% of Prime-member orders the same or next day in the largest U.S. metropolitan areas, Jassy told analysts in April.
"As we get items to customers this fast, customers choose Amazon to fulfill their shopping needs more frequently," Jassy said on the conference call.
Amazon's ad business is also a "key driver of profitability," according to analysts at Bank of America. Amazon's digital ad sales have grown in the past decade fast enough to be mentioned in the same breath as the empires of Google, as well as Facebook and Instagram parent company Meta. That revenue is mostly driven by selling placements on Amazon's website and app.
But Amazon also began selling commercials for the first time on its Prime Video service in January. BofA analysts project Amazon's ad revenue will grow 23% to $57.65 billion this year and 19% to $68.72 billion in 2025.
Amazon Stock: The Walmart Factor
Amazon is expected to capture roughly 40% of U.S. e-commerce spending this year, according to estimates from Emarketer. Yet it faces new competitive threats.
Temu has expanded quickly in the U.S. by offering prices low enough that customers forgive slow shipping times out of China. On June 26, The Information reported that Amazon plans to launch a channel on its website dedicated to selling lower-cost items directly from China, a clear response to Temu and fast-fashion site Shein.
Walmart, meanwhile, stands in the way of a market important to Amazon: grocery.
"Walmart is far more dominant in grocery e-commerce," Emarketer's Canaves told IBD. "Amazon has struggled with how to integrate the three channels by which it sells grocery products, which are Whole Foods, Fresh and through Amazon.com."
Another factor to watch is the millions of independent sellers on Amazon's Marketplace. Third-party seller services are Amazon's second-largest source of revenue. But some sellers have pushed back against the company's fees and other policies.
An Amazon spokesperson told IBD that the company "provides entrepreneurs and small businesses with powerful selling capabilities at a great value by creating innovative, technology-driven solutions and leveraging Amazon's scale and reach."
Analysts are also watching whether Amazon can keep adding Prime members, who pay $139 per year for free shipping, video streaming and other benefits. Emarketer projects that Amazon will end 2024 with 181.4 million U.S. Amazon Prime subscribers, up 7% from 2022.
Other Challenges For Andy Jassy
Meanwhile, Jassy faces challenges on the regulatory front.
The U.S. Federal Trade Commission joined 17 state attorneys general in hitting Amazon with a major antitrust lawsuit in September. The lawsuit, which accuses Amazon of abusing its market power, sets up what is likely to be the biggest legal fight in the company's 30-year history, and Amazon has called the FTC "wrong on the facts and the law." But it will be a long battle. In February, a federal judge set an October 2026 trial date for the case.
In the meantime, regulatory scrutiny could limit Amazon's ability to make deals. Amazon hoped to acquire iRobot but recently backed away from the deal due to regulatory hurdles in Europe.
The company is also dealing with labor tensions involving Amazon's more than 1.5 million full- and part-time employees. In June, the independent Amazon Labor Union voted to affiliate with the Teamsters. ALU made history in 2022 when it won a vote at a fulfillment center on Staten Island.
Is Amazon Stock A Buy?
Amazon stock formed a flat base pattern with a buy point at 191.70, according to MarketSurge. As of Thursday's close, the stock was in a buy zone.
Amazon stock also holds strong IBD stock ratings. It has a Relative Strength Rating of 93 out of a best-possible 99. That indicates the stock has outperformed most of the market over the past 12 months. It has an IBD Composite Rating of 95 out of a best-possible 99. That means AMZN stock currently tops 95% of other stocks in terms of key fundamental performance metrics and technical strength.
Investors should watch for signs the stock is behaving well on a technical basis after the breakout. For instance, the stock should not fall 7% or 8% from the buy point. Moving averages also can help investors size up a stock's behavior.
Amazon stock also has potential catalysts coming up that investors should monitor.
Prime Day, coming on July 16, is considered a harbinger for the strength of Amazon's retail business. The company is also expected to report second-quarter earnings later in July.
