Amazon, valued at nearly $2 trillion and trading under the ticker symbol (NASDAQ: AMZN), continues its upward trajectory, defying stagnation. Fueled by the widespread adoption of artificial intelligence (AI) in its Amazon Web Services (AWS) division, the e-commerce giant remains an enticing prospect for investors.
The Alluring Services Platform
Amazon’s cloud services platform, AWS, stands as a testament to the company’s triumph. Enterprises are increasingly leveraging its infrastructure, propelled by the integration of AI capabilities. In its latest quarter, AWS witnessed a 13% growth, surpassing $24 billion in revenue. Despite the rapid growth of competitors like Microsoft’s Azure, Amazon remains a key player in the burgeoning market for enterprise services and AI.
CEO Andy Jassy encapsulated the sentiment, stating, “[N]ew [AI] capabilities like Bedrock, Q, and Trainium have resonated with customers and are starting to be reflected in our overall results.”
Elevated Margins
Amazon’s stock has often faced criticism for its low profit margin, chiefly due to the capital-intensive nature of its e-commerce arm. However, recent data displays a noteworthy trend towards profitability. Operating income surged over threefold in 2023, reaching $37 billion. Factors such as the exponential growth of the AWS segment and the burgeoning digital advertising business have contributed significantly to this upturn.
Jassy’s optimistic stance reverberated, “Our teams are delivering at a rapid clip, and we have a lot in front of us to be excited about.” The company aims to pivot towards a profit margin exceeding 10% of sales, setting the stage for sustained positive momentum in the stock market.
Optimal Valuation
With a distinctive portfolio of businesses, Amazon’s valuation defies direct comparison with peers. Despite its recent rally, there exists a consensus that Wall Street may, in fact, undervalue the company. Trading at less than 4 times sales, Amazon’s pricing aligns more closely with Costco’s revenue multiple of 1.3, rather than Apple’s 7 times sales premium. Anticipated growth in annual earnings should bridge this valuation gap, projecting a promising trajectory for potential investors.
For cautious investors, tracking Amazon’s operating income and the pace of AWS growth provides vital insights into future improvements. Any setbacks in these domains may precipitate a temporary decline in stock prices, offering a favorable entry point. Conversely, long-term investors inclined towards risk may find Amazon stock an attractive holding.
Is Amazon Worth the $1,000 Investment?
Before diving into Amazon stock, it is prudent to weigh the following:
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