Artificial intelligence (AI) is currently a dominant force in the technology landscape, with e-commerce and cloud computing giant Amazon taking center stage. In the first half of 2024, Amazon’s stock has surged by an impressive 23%, outstripping the gains of both the S&P 500 and the Nasdaq Composite.
Despite this remarkable performance, Wall Street analyst Doug Anmuth from JP Morgan Chase believes the stock could ascend even further by a substantial 28% over the next year.
Amazon’s Cash-Flow Empire
Two renowned institutional investors, Berkshire Hathaway’s Warren Buffett and Ark Invest’s Cathie Wood, follow Amazon closely in their portfolios. While their investment styles differ significantly, both have chosen Amazon as a common holding. The allure of Amazon lies in its robust cash flow, a rarity in the technology realm where many firms burn through cash to drive growth.
Amazon’s impressive financials speak volumes. The company witnessed an 82% year-over-year increase in its operating cash flow, reaching $99 billion in the twelve months ending March 31. Additionally, Amazon’s free cash flow during this period totaled a staggering $50 billion.
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The Impact of AI Investments
Amazon has actively pursued AI technologies, making substantial investments in key players like Anthropic and Hugging Face. The company’s recent announcement of an $11 billion infrastructure project in Indiana underscores its commitment to AI. These strategic moves are set to enhance Amazon’s core businesses, including AWS, e-commerce, and advertising, through AI integration.
Considering an Investment in Amazon Stock
Anmuth’s optimistic price target might catch the eye of investors, but the decision to invest in Amazon should transcend numerical targets. Amazon’s potential as an AI leader in the evolving tech landscape is a compelling reason to consider the stock. The company’s diverse revenue streams and AI integration across its ecosystem position it favorably for sustained success.
If we examine Amazon’s price-to-free-cash-flow multiple, we observe intriguing trends. The metric spiked during periods of cash burn and has now stabilized as Amazon consistently generates cash. Remarkably, the current P/FCF multiple of 43 is half its ten-year average, reflecting a more reasonable valuation given Amazon’s evolution into a larger and more sophisticated entity.