Amazon (NASDAQ: AMZN) has evolved into a global powerhouse since its humble beginnings as an online book retailer nearly three decades ago. From dominating e-commerce to leading the cloud industry, launching space satellites, delving into groceries, gaming, consumer tech, and beyond – Amazon’s metamorphosis is a tale of unbridled ambition.
The company’s financials reflect this upward trajectory, with annual revenue, operating income, and free cash flow experiencing meteoric rises in the past five years. As of 2024, Amazon boasts a market capitalization of $1.9 trillion, securing its position as the sixth most valuable company worldwide, shoulder to shoulder with tech titans such as Alphabet, Nvidia, and Apple.
A Beacon of Stability in Market Volatility
Investing in Amazon is akin to anchoring your ship in a reliable harbor. In the turbulent waters of the 2022 economic downturn, the Nasdaq Composite plummeted 33%, causing widespread panic. Retailers faced the brunt of this storm as high inflation compelled consumers to tighten their purse strings. Amazon, too, saw its shares nosedive by 50%, with e-commerce profits taking a hit.
But like a phoenix rising from the ashes, Amazon staged a remarkable comeback. By fiscal 2023, the company registered a 12% year-over-year revenue surge, reaching $575 billion, while its operating income tripled to $37 billion. A mix of strategic cost-cutting measures and an inflationary reprieve bolstered its e-commerce arm, catapulting its free cash flow by a staggering 904% to $32 billion in the past year.
Amazon’s resilience over the past year underlines the wisdom of long-term investment strategies. Those who divested in 2022 missed out on the substantial growth that followed.
A Glimpse into the Future: Promising Trajectory for Growth
With the e-commerce sector projected to swell to $3.6 trillion this year, Amazon’s 38% market share positions it as the unrivaled behemoth of online retail. In stark contrast, Walmart trails with a mere 6% market share, highlighting Amazon’s dominance.
However, Amazon’s crowning jewel is undoubtedly Amazon Web Services (AWS), the cloud platform that is propelling its growth. In Q4 2023, AWS revenue surged by 13% year over year to $24 billion, accounting for 54% of the company’s operating income while contributing the least to its revenue.
AWS’s foray into the burgeoning AI market – slated to expand at a CAGR of 37% until at least 2030 – positions Amazon at the helm. With AWS’s extensive cloud infrastructure, the company is well-positioned to tap into the burgeoning generative AI sector.
Notably, AWS is making significant investments in AI, rolling out new tools such as Bedrock for building generative AI apps, CodeWhisperer for code generation, and HealthScribe for transcribing medical dialogues. Amazon is even integrating AI into its retail platform, evident in the recent unveiling of an AI shopping assistant named Rufus.
Data by YCharts
The tech giant is poised for substantial growth, with earnings-per-share estimates hinting at a bright future. Projections suggest Amazon’s earnings could surge to nearly $7 per share by fiscal 2026. Factoring in a forward price-to-earnings ratio of 44, this translates to a stock price of $308.
This prognostication forecasts a 66% increase in Amazon’s current stock value over the next two fiscal years. Given this outlook, investing in Amazon now appears to be a prudent move before its stock price scales new heights.
Debating the Investment Landscape: To Buy or Not to Buy?
Prior to venturing into Amazon stock, it’s sage advice to ponder a key consideration:
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John Mackey, former CEO of Whole Foods Market – an Amazon subsidiary – sits on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, also serves on The Motley Fool’s board. Dani Cook does not hold positions in any of the stocks mentioned. The Motley Fool holds positions in and endorses Alphabet, Amazon, Apple, Nvidia, and Walmart. The Motley Fool adheres to a strict disclosure policy.
Any opinions expressed here are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
