Amazon‘s (NASDAQ: AMZN) continues to redefine market expectations, with its stock surging by 66% over the last 12 months. The conglomerate’s feat is nothing short of remarkable, considering the turbulent market landscape. Embracing cost-cutting strategies and venturing into booming sectors like artificial intelligence (AI) cemented Amazon’s position as a potent investment avenue.
After a resurgent 2023, Amazon’s e-commerce business is finally back in the black, complemented by the expansive growth of Amazon Web Services (AWS). With surging earnings and robust free cash flow, the tech giant is primed for a stellar 2024.
If you’re contemplating a market play, Amazon’s upward trajectory presents an enviable investment proposition. Here are three compelling reasons to consider Amazon stock in 2024.
1. Unyielding Earnings Amid Market Headwinds
Macroeconomic upheavals in 2022 mauled the Nasdaq-100 Technology Sector, causing a 40% plummet. Amazon didn’t escape unscathed, enduring a 50% stock slide alongside staggering earnings nosedives.
However, adversity often uncovers an investment’s mettle. Amazon’s resilience in the face of adversity is testament to its stalwart long-term potential. The company swiftly pivoted to streamline its operations, placing a premium on profitability. The strategic closure of warehouses, extensive workforce optimization, and sunset of underperforming ventures like Amazon Care were pivotal to Amazon’s resurgence.
In Q3 2023, Amazon reported a 13% uptick in revenue, surpassing Wall Street projections by $1.5 billion, while operating income tripled. Notably, the North American segment netted over $4 billion in operating income, a significant upturn from its $412 million losses in the prior-year quarter.
Furthermore, Amazon’s operational overhaul triggered a 427% surge in free cash flow, soaring to $17 billion over the preceding year. With impeccable financial robustness, Amazon is well-equipped to not only fortify its business but also weather potential headwinds.
2. AWS: Powering Amazon’s Growth Trajectory
While renowned for its e-commerce prowess, Amazon’s most potent growth catalyst is AWS. The cloud behemoth contributed 60% of Amazon’s Q3 2023 $11 billion operating income.
The cloud sphere has undergone an explosive resurgence, catalyzed by the COVID-19 pandemic which transitioned swaths of businesses online and embraced hybrid work models. Moreover, cloud computing could emerge as the premier domain in the AI landscape. Given the growing inclination toward AI to bolster productivity, cloud services are gaining traction.
According to Grand View Research, the AI market is anticipated to exhibit a staggering 37% compound annual growth rate until 2030, potentially surpassing a $1 trillion valuation. Bolstered by a commanding 32% market share in the cloud sector, AWS is strategically positioned to reap the rewards of AI’s ascent.
Over the past year, AWS has integrated an array of AI tools and announced forays into chip manufacturing. Backed by robust financial resources and brand omnipotence, Amazon could emerge as a dominant force in AI, if it hasn’t achieved that status already.
3. Stock’s Growth Potential in 2024
Despite the bullish 2023, Amazon’s stock still lingers approximately 17% below its peak in July 2021. This figure underscores the untapped potential for stock appreciation in the fresh year. Projections for earnings per share (EPS) are even more sanguine.
Data by YCharts
Amazon’s projected earnings could scale to almost $5 per share by fiscal 2024. Factoring in the company’s forward price-to-earnings ratio of 44, indicates a stock price of $211, signaling a 36% upsurge over the approaching fiscal year.
Bolstered by recent cost-containment measures and a thriving cloud enterprise, investing in Amazon stock in 2024 appears to be a prudent choice.
Should you invest $1,000 in Amazon right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
