Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon has seized the attention of Wall Street this year, impressing investors with a resurgence of profitability in its e-commerce sector and a promising foray into artificial intelligence (AI). Notably, the company's shares have surged by approximately 70% year to date, a significant turnaround from the 50% decline experienced in 2022 amid a broader market sell-off.
The preceding year witnessed an economic downturn that led to substantial drops in consumer spending across various industries. Amazon's retail business bore the brunt, facing repeated declines in revenue throughout 2022. However, strategic cost-cutting measures and relief from inflationary pressures have steered the company back onto a growth trajectory.
In 2023, Amazon's e-commerce business has thrived, showcasing resilience and adaptability. Simultaneously, the company is fortifying its long-term prospects by establishing a lucrative presence in the emerging AI market. With these developments, the current juncture presents an opportune moment to delve deeper into this tech giant and contemplate investment before the window narrows.
For astute investors, here are three key aspects of Amazon that warrant consideration:
Strategic Focus on Profitability Through Cost-Cutting
In response to the economic challenges of the previous year, Amazon faced a wake-up call, particularly in its e-commerce segment, which recorded combined operating losses of $10.6 billion in fiscal 2022. Amazon Web Services (AWS) acted as a crucial source of profitability, with operating income close to $23 billion. The adversity prompted Amazon to reassess its business model, leading to a series of cost-cutting measures. These included closing or canceling warehouse construction, discontinuing unprofitable projects like Amazon Care, and implementing layoffs. The ongoing restructuring prioritizes profitability and positions the company for long-term resilience, enabling it to weather macroeconomic challenges successfully.
E-Commerce Business Turnaround and Financial Strength
Amazon's strategic restructuring efforts have yielded impressive results, particularly evident in its North American segment, which reported over $4 billion in operating income in the third quarter of 2023. This marks a significant improvement from the $412 million in losses posted in the same quarter of the previous year. Given that Amazon's e-commerce segments contribute over 80% of its annual revenue, the turnaround in the retail business is a testament to effective leadership and the company's value as a long-term investment. The North American segment's return to profitability in Q1 2023, coupled with ongoing restructuring, positions Amazon on a stronger financial footing heading into the next year.
AI Expansion Leveraging Cloud Dominance
Recognizing the surge in demand for AI cloud services, Amazon is leveraging its dominant position in cloud computing, particularly through AWS, which commands a leading 32% market share. Despite budget cuts in gaming and music divisions, Amazon is strategically investing in AI, introducing a range of AI services on AWS. The company's ambitious plans include venturing into chip development, aiming to challenge market leader Nvidia by offering superior price-to-performance. With the AI market projected to grow at a compound annual growth rate of 37% through 2030, Amazon's proactive stance in this space positions it favorably. While facing competition from cloud rivals like Microsoft's Azure and Alphabet's Google Cloud, Amazon's market dominance and esteemed clientele provide a significant advantage.
In conclusion, Amazon's business is on a promising growth trajectory, driven by the expansion of its e-commerce and cloud businesses, simultaneous cost-cutting in less profitable divisions, and strategic investments in the booming AI market. For investors seeking a long-term perspective, the current landscape presents an opportune moment to consider Amazon as a robust and forward-looking investment.
As long as the price is above 130.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 144.98
- Take Profit 1: 150.00
- Take Profit 2: 160.00
Alternative scenario:
If the level of 130.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 130.00
- Take Profit 1: 123.00
- Take Profit 2: 115.00
