Source: PaxForex Premium Analytics Portal, Fundamental Insight
This has been an extremely difficult year for Amazon shareholders. After skyrocketing in the early stages of the pandemic, when store closings and other COVID-related restrictions forced people to shop online, the e-commerce giant's stock price bounced back in 2022. After several quarters of slowing growth, Amazon stock is down almost 50% over the past year.
Still, Amazon remains one of the most competitive companies in the world. And its long-term growth prospects are much rosier than recent trading would suggest.
The stock market tends to correct its mistakes, so these divergences are unlikely to persist. Today, we look at a few reasons why Amazon stock will rise over the next year.
- AWS growth should accelerate
When people think of Amazon, they usually think of its sprawling e-commerce business. But Amazon.com and its subsidiary sites are no longer the company's main sources of revenue. Amazon Web Services (AWS) owns that right. AWS is the leading provider of cloud infrastructure services. It has a 34% share of that $217 billion market. That's more than its two closest competitors combined.
The cost, performance, and security advantages of cloud computing, combined with the growing use of advanced technologies such as artificial intelligence, are expected to drive industry growth over the next decade. According to Grand View Research, the global cloud computing market will exceed $1.5 trillion by 2030, up from $484 billion in 2022. Amazon is likely to benefit more from this growth than any other company.
Investors, however, have been more focused on Amazon's warnings that AWS growth could slow in the near term as businesses postpone technology investments because of fears of a possible recession. But while a recession could drag down Amazon's results, any acceleration in AWS growth could spark a powerful rally in the company's stock price. And given the growing long-term demand for cloud services, it's likely only a matter of time.
- Amazon ramps up digital advertising
Digital advertising is another powerful growth driver for Amazon that is probably underestimated by investors. Amazon's ever-growing army of third-party sellers relies on the company's advertising platform to promote its products to the e-commerce titan's massive user base.
Amazon's marketing solutions help these online businesses generate high returns on their advertising spend because they give sellers the ability to target consumers when they are most likely to make a purchase. And, unlike Google's and Facebook's offerings, Amazon's data collection capabilities have not been severely weakened by Apple's privacy-related changes. These factors are helping Amazon quickly gain market share in the digital advertising market, which Statista predicts will reach $876 billion by 2026, up from $602 billion in 2022.
However, as with AWS, investors seem concerned about the potential cooling of the advertising market during the recession in 2023. While it is possible, digital ad spending could also accelerate again once the economy stabilizes and begins to recover. This would certainly make investors happy and help boost Amazon's stock price.
- Online sales return to profitability
Concerns about peak e-commerce sales are probably the most overblown. It's true that online sales have slowed as more people have returned to conventional stores since the easing of quarantine restrictions. But the long-term trend of e-commerce sales growth remains unchanged.
Amazon's huge scale and extensive network of third-party sellers allow it to offer lower prices on a wide range of products than almost all of its competitors. And having spent tens of billions of dollars to bolster its delivery network during the pandemic, Amazon can now provide same-day and even same-day delivery services for a multitude of items.
These advantages should help Amazon capture a larger share of the global e-commerce market, which, according to eMarketer, will grow to nearly $7.4 trillion by 2025, up from $5.5 trillion in 2022.
In addition, Amazon's spending patterns could improve significantly in 2023. Recent trends suggest that inflation is slowing. And with oil prices and freight rates already down sharply from their highs, Amazon can take advantage of lower shipping costs, which should help boost its profits.
If Amazon's huge e-commerce business can return to sustained profitability - and these growth trends and perspectives suggest it can - investors would not mind paying a higher price for its shares.
As long as the price is below 96.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 80.95
- Take Profit 1: 75.00
- Take Profit 2: 70.00
Alternative scenario:
If the level of 96.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 96.00
- Take Profit 1: 103.00
- Take Profit 2: 110.00
