Source: PaxForex Premium Analytics Portal, Fundamental Insight
Over the past few decades, big tech has emerged as one of America’s most powerful engines of wealth creation. Amazon exemplifies this trend, with its shares skyrocketing over 240,000% since debuting on public markets in 1997.
Yet, historical success is no guarantee of future performance. Examining Amazon’s recent developments sheds light on what lies ahead for this e-commerce giant.
Since Andy Jassy assumed the role of CEO in 2021, succeeding Jeff Bezos, Amazon has shifted its focus from relentless growth to profitability. This strategic pivot has involved significant cost-cutting measures, including workforce reductions, streamlining its fulfillment network, and shedding less-profitable ventures. These efforts have delivered remarkable results, transforming the company’s financial performance.
Amazon’s net sales increased by 11% year over year, reaching $158.9 billion, while operating income surged by 55% to $17.4 billion. This growth was bolstered by its core US e-commerce segment, where cost-saving initiatives have had the greatest impact.
A major driver of Amazon’s profitability comes from its Amazon Web Services (AWS) division, which accounted for 60% of the company’s operating income ($10.4 billion) during the period.
AWS has become a cornerstone of Amazon’s growth strategy. Originally designed to handle Amazon's internal data and storage needs, the cloud computing division now offers services like computing power and storage to external clients. Its rapid evolution has positioned Amazon to capitalize on emerging opportunities such as generative artificial intelligence (AI).
AWS enables Amazon to compete with tech giants like Microsoft, Alphabet, and Meta Platforms in the AI race. With its 31% market share as the largest cloud service provider globally, Amazon is well-positioned to monetize this technology.
A significant portion of AWS's AI business involves renting Nvidia-powered computing resources to clients for generative AI workloads. Additionally, Amazon is developing custom chips, such as Trainium and Inferentia, which deliver optimized performance for specific tasks. Management estimates this opportunity is growing three times faster than cloud computing did at a comparable stage.
However, while the AI infrastructure market is expanding rapidly, many consumer-facing AI applications remain unprofitable. Whether the AI boom represents a temporary trend or a sustainable source of growth for AWS is still uncertain.
Amazon is also exploring new frontiers in e-commerce to defend its market share. The company has introduced Haul, a marketplace aimed at competing with low-cost Chinese rivals like Shein and Temu. Focused on affordable fashion, home, and lifestyle goods priced below $20, the platform keeps costs competitive by shipping directly from China.
Although Haul may not revolutionize Amazon’s business, it represents a strategic move to counter competition and sustain the company’s dominant 40% share of the US e-commerce market.
The term "millionaire maker" often describes a stock with the potential to double or triple in value within a few years. Despite Amazon’s diverse growth drivers, this level of performance may no longer be realistic. The limits of cost-cutting and tougher year-over-year comparisons could slow future profitability gains.
However, Amazon remains a solid investment option. With a forward price-to-earnings (P/E) ratio of 34, it trades at a slight premium to the Nasdaq 100 average - a reasonable valuation given its leadership in e-commerce, cloud computing, and AI. While its explosive growth phase may be behind it, Amazon continues to solidify its position as a tech powerhouse with long-term potential.
As long as the price is above 190.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 200.79
- Take Profit 1: 210.00
- Take Profit 2: 215.00
Alternative scenario:
If the level of 190.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 190.00
- Take Profit 1: 180.00
- Take Profit 2: 175.00
