Amazon (NASDAQ: AMZN) has staged a gripping comeback in the wake of the tumultuous tech sector downturn in 2022 that shook the foundations of many growth stocks. An epic plunge of 50% was the bitter pill Amazon had to swallow amidst the chaos. Not only did it bounce back, but it also thrived, boasting a remarkable 123% surge since the dawn of 2023. The resilience displayed by Amazon has seen it soar by 17% from the beginning of the challenging 2022 until the present.
The retail behemoth has harnessed a series of astute cost-cutting maneuvers and the relief of abating inflation to its advantage. Bolstered by burgeoning cash reserves, Amazon has embarked on aggressive investments in burgeoning sectors like artificial intelligence (AI) and digital advertising.
With a tantalizing growth trajectory lying ahead, Amazon’s stock presents itself as a tantalizing opportunity that simply cannot be overlooked right now. Furthermore, its modest price-to-sales ratio standing at approximately 3 underscores its allure in comparison to select industry rivals.
1. Resplendent Retail Growth
The surge in living costs compelled multitudes to tighten their belts on discretionary spending in 2022, with the Federal Reserve’s interest rate hikes aimed at combating inflation triggering market-wide downturns. In this testing environment, Amazon’s e-commerce profits nosedived. Yet, the resounding retail growth witnessed in the past year underscores Amazon’s adeptness at navigating economic storms, highlighting the enduring reliability of its business.
Despite branching into diverse industries, Amazon’s retail-centric segments constitute over 80% of its net sales, with recent upswings in its North America and international divisions significantly inflating its aggregate earnings.
In the first quarter, Amazon recorded a 13% year-over-year surge in revenue to a formidable $143 billion, surpassing Wall Street’s estimates by a hefty $750 million. Notably, the company’s North America and international segments experienced revenue upticks of 12% and 10%, respectively, during the said quarter.
2. Flourishing Digital Advertising Venture
This year witnessed Amazon’s foray into the arena of streaming advertising when it introduced advertisements on its Prime Video platform. A mere six months down the road, the gamble is already paying dividends.
In the first quarter, revenue emanating from the advertising services sector spiked by a robust 25% year over year. This nascent venture holds the potential to buoy the company’s top-line performance for a substantial period.
Projections from the market research firm Statista forecast the digital advertising sector to touch $740 billion this year, with the growth momentum showing no signs of abating. Furthermore, the colossal viewership on Prime Video empowers Amazon to competitively price ads on the platform, with rates ranging between $30 and $35 per 1,000 impressions. Comparatively, Netflix initially charged up to $45 per 1,000 impressions on its ad-supported tier before adjusting prices to align with Amazon’s offerings. Smaller streaming platforms may grapple to match Amazon’s ad rates effectively.
3. Amazon’s Financial Might in the Realm of AI
Amazon’s operating income and free cash flow have soared over the prior year, propelled by substantial gains in both its e-commerce divisions and its cloud business, Amazon Web Services (AWS). In the first quarter, AWS’ operating income nearly doubled year over year to a monumental $9 billion, constituting over 60% of the company’s total operating income despite AWS generating the lowest revenue slice.
Flushed with resurging profits, Amazon has pivoted decisively towards AI. Cloud platforms represent a pivotal growth domain in AI as enterprises increasingly embrace cloud services to leverage AI technology. With a commanding 31% market share in cloud infrastructure, AWS gains a competitive edge.
This year, Amazon has augmented AWS with an array of cutting-edge AI tools, channeled billions into erecting data centers across the globe, and ventured into chip design to fashion its proprietary AI processors in a bid to fortify its foothold in this high-growth arena.
With its stock soaring by a whopping 95% over five years, bolstered by growth triggers across multiple sectors, Amazon holds the promise of even loftier prospects over the next half-decade, especially given its current enticingly low price-to-sales ratio. Undoubtedly, Amazon stands out as a stock to seize with unbridled optimism and foresight.
Should you invest $1,000 in Amazon right now?
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John Mackey, the erstwhile CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Dani Cook maintains no stake in any of the aforementioned stocks. The Motley Fool holds positions in and recommends Amazon, Netflix, and Warner Bros. Discovery. The Motley Fool abides by a disclosure policy.