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Are you one of those investors who wish they could go back in time and buy Amazon (AMZN) shares before it became the giant it is today? It still might not be too late to buy this outstanding stock.
As the world's reliance on digital solutions and e-commerce grows, along with the artificial intelligence (AI) rush, the stock market's gaze remains fixed on companies like Amazon. With its wide range of services that include e-commerce, entertainment, cloud computing, and more, Amazon continues to shine.
Amazon's performance over the past years has been formidable, with its shares having gained 706% in the last decade. Despite macroeconomic headwinds pressuring consumer spending, growth across all of its segments propelled its stock higher by 77% last year, outpacing the S&P 500 Index’s ($SPX) gain of 25%. The Street-high target price of $230 for AMZN implies the stock can soar as much as 58% by the end of 2024. Let’s find out how.
Amazon’s Unstoppable Trajectory
The global pandemic acted as a catalyst for Amazon's growth, highlighting the convenience and necessity of its services. Its e-commerce dominance remains unmatched, accounting for a sizable portion of online retail.
Additionally, Amazon Web Services (AWS) continues to be a cornerstone of its revenue, powering numerous businesses globally. In its recent Q3 2023, AWS brought in sales of $23.1 billion, up 12% from the year-ago quarter. Net sales for the quarter stood at $143.1 billion, versus $127.1 billion in Q3 2022, and beat the consensus estimate by $1.62 billion. Amazon’s profits surged an astounding 236% to $0.94 per share in the quarter.
The global cloud computing market is projected to grow at a compounded annual growth rate of 15.1% to be worth $1.27 trillion by 2028. According to Statista, AWS already holds a dominant position, with a 32% share in the cloud computing market, followed by Microsoft’s (MSFT) Azure and Alphabet’s (GOOGL) Google Cloud. With the help of AI, there are still plenty of ways for Amazon to profit from its explosive growth.
Amazon’s success can be attributed to its inclination for innovation and diversification. The company consistently explores new territories, from streaming services with Amazon Prime Video to healthcare initiatives and autonomous delivery technologies. These ventures not only expand Amazon's market reach, but also serve as catalysts for future growth opportunities.
For instance, besides providing video content and subscription-based streaming services, Amazon Prime also gives its members exclusive offers, discounts, and free or early shipping. This strategy builds customer loyalty, leading to recurring subscription revenue that increased 14.3% year-on-year to $10 billion in Q3.
Management highlighted that its Prime members globally “saved more than $1 billion on millions of deals" during the company’s Prime Big Deal Days in October.
Advertising Revenue Could Be a Big Growth Driver
The advertising market is predicted to begin to rebound this year, following a period of decline. The timing couldn't be more ideal, as Amazon decided to boost revenue by including limited commercials on Prime Video this year. Its U.S. subscribers can opt for a non-ad version by paying additional charges of $2.99 per month. Revenue from advertising climbed by 26.3% to $12.06 billion in the third quarter.
Moreover, Amazon also generated a positive free cash flow of $21.4 billion for the trailing 12 months, which should help fund its future AI projects or partnerships.
Amazon, like all tech companies, sees AI as an essential opportunity to drive growth in the coming years. Amazon highlighted its strategic partnership with AI start-up Anthropic, which has chosen AWS as its primary cloud provider, and could significantly improve AWS capabilities.
Management forecasts Q4 revenue to be in the $160 billion to $167 billion range. Analysts' revenue predictions fall in the same range, with earnings per share (EPS) expected at $0.79 for Q4.
For the full year, analysts expect a net profit of $2.68 per share, a drastic improvement from a loss of $0.27 per share in 2022.
What Does Wall Street Say About AMZN Stock?
Analysts' optimism stems from Amazon's ongoing efforts to expand its products and integrate AI into its offerings. According to Barron's, analysts at BofA Securities and Wedbush believe the addition of Prime Video ads is a wise decision on Amazon's part. The advertising market's recovery could work in Amazon’s favor.
Meanwhile, DA Davidson analyst Gil Luria believes that all of its segments have the potential to grow significantly. He went on to say that a “potential re-acceleration of growth in Amazon Web Services could drive upside to shares in 2024."
Out of the 43 analysts covering AMZN, 39 have a “strong buy” rating, three analysts recommend a “moderate buy,” and one rates it a “hold.” The average price target stands at $177.05, which implies about 21.7% potential upside from current levels.
Furthermore, analysts predict Amazon’s revenue will increase by 11.6% year-over-year to $637.3 billion in 2024. Earnings could also surge to $3.50 from EPS of $2.68 estimated for 2023.
Trading at 41 times forward 2024 earnings, Amazon appears to be overpriced. However, the company's growth across all segments, AWS's dominance in the cloud computing market, and long-term growth prospects driven by AI justify the premium valuation.
The Bottom Line
Amazon has continually expanded its reach into various sectors, demonstrating resilience even during uncertain times. This robust performance over the last few years has instilled confidence in investors and analysts, leading to consistent interest in Amazon's stock.
Ultimately, given Amazon’s strong fundamentals and market positioning, there are higher chances of Amazon’s stock soaring in 2024 and touching the Street's high target price of $230. However, investors should note that the path may involve periods of fluctuations and steadier climbs. I believe Amazon is a solid bet for long-term investors, owing to its diversified revenue streams and the integration of AI into its offerings - which could lead to sustained growth beyond 2024.
On the date of publication, Sushree Mohanty 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.
