Source: PaxForex Premium Analytics Portal, Fundamental Insight
Since its inception as an online book retailer nearly three decades ago in Seattle, Amazon has undergone a remarkable evolution. Transitioning from its humble beginnings, the innovative company has diversified across various industries, emerging as a dominant force in e-commerce, cloud computing, space technology, groceries, gaming, consumer electronics, and more.
Amazon's trajectory of success is mirrored in its financial achievements, with annual revenue, operating income, and free cash flow experiencing substantial growth over the past five years. As of 2024, its market capitalization stands at an impressive $1.9 trillion, positioning it as the sixth-most valuable company globally, alongside tech giants like Alphabet, Nvidia, and Apple.
With its promising growth trajectory, Amazon shows no signs of reaching its pinnacle, benefiting from the tailwinds of artificial intelligence (AI) and cloud computing. Thus, the question arises: why is Amazon's stock an attractive investment opportunity?
One compelling reason lies in Amazon's proven resilience amidst challenging circumstances. The economic downturn of 2022 triggered a market-wide sell-off, resulting in a 33% plunge in the Nasdaq Composite. Retailers bore the brunt of the impact as inflationary pressures compelled consumers to tighten their discretionary spending. Consequently, Amazon's shares plummeted by 50% in 2022, accompanied by significant profit declines in its e-commerce segments.
Nevertheless, the company orchestrated an impressive turnaround, showcasing its reliability and robustness. In fiscal 2023, Amazon recorded a 12% year-over-year increase in revenue to $575 billion, while its operating income tripled to $37 billion.
A combination of cost-cutting measures and easing inflation bolstered the company's e-commerce operations, resulting in a staggering 904% surge in free cash flow to $32 billion over the last 12 months.
Amazon's performance underscores the importance of adopting a long-term investment perspective. Investors who divested their holdings in the company amidst the turmoil of 2022 missed out on its remarkable growth in subsequent years.
As per Statista's projections, the e-commerce market is set to reach $3.6 trillion this year, with a forecasted compound annual growth rate (CAGR) of 10% extending until at least 2028. With Amazon holding a commanding 38% market share in online retail, its dominance appears poised for sustained growth, especially when juxtaposed against Walmart's second-largest share of merely 6%.
Yet, Amazon's most significant growth driver lies in its cloud platform, Amazon Web Services (AWS). In the fourth quarter of 2023, AWS witnessed a 13% year-over-year revenue increase, reaching $24 billion. Remarkably, AWS contributed 54% of the company's operating income, despite generating the lowest revenue among its three segments.
AWS affords Amazon a lucrative position in the AI landscape, which is projected to burgeon at a CAGR of 37% until at least 2030. As the premier cloud service provider globally, AWS possesses the capacity to harness its expansive cloud data centers and shape the burgeoning generative AI market.
Given this context, it's unsurprising that AWS is channeling significant investments into this nascent sector. In 2023, AWS responded to the burgeoning demand for AI services by unveiling a suite of innovative tools. Notably, it introduced Bedrock, facilitating the development of generative AI applications, alongside CodeWhisperer, capable of generating code for developers, and HealthScribe, a tool adept at transcribing patient-physician conversations.
Moreover, Amazon is leveraging AI to enhance its retail platform, as evidenced by the introduction of an AI shopping assistant named Rufus ahead of its latest earnings release.
The tech behemoth is evidently on a promising growth trajectory, with earnings-per-share estimates corroborating its considerable potential. Projections suggest that Amazon's earnings could reach nearly $7 per share by fiscal 2026. When multiplied by its forward price-to-earnings ratio of 44, this yields a stock price of $308.
Such a forecast implies a 66% increase in Amazon's stock from its current value over the ensuing two fiscal years. Consequently, Amazon's shares present a compelling investment opportunity at present, warranting consideration before its share price experiences a surge.
As long as the price is above 175.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 184.81
- Take Profit 1: 190.00
- Take Profit 2: 205.00
Alternative scenario:
If the level of 175.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 175.00
- Take Profit 1: 165.00
- Take Profit 2: 155.00
