The Nasdaq Composite, known for its growth-heavy composition, experienced significant turbulence in 2022. It plummeted by 33%, only to roar back in the subsequent year with a remarkable 43% gain, marking the 11th instance since 1971 of a positive rebound following a negative year.
Historically, the second year of Nasdaq Composite recoveries, albeit less dramatic than the first, has still contributed to an average gain of 21.8%. While this does not guarantee a stellar performance for growth stocks in 2024, the odds appear to be in their favor.
Positioned for Potential Growth
Amazon, a frontrunner among stock-split stocks, executed a 20-to-1 split in June 2022, propelling its shares to new heights. With a 63% surge over the past year, the company stands poised to capitalize on the anticipated Nasdaq bull market in 2024.
Strategically, Amazon has been investing in artificial intelligence (AI) services, striving to match the pace set by its industry peers. The company has made significant inroads with Amazon Web Services (AWS), evincing its prowess in the cloud services domain.
Furthermore, Amazon’s foray into the development of cost-effective chips for training and inference purposes, coupled with its collaboration with Nvidia, has garnered attention from prominent players like Anthropic, underscoring the robustness of its cloud offerings.
The company’s e-commerce division also exhibits promising growth, with sales climbing 11% in the first nine months of 2023. Positioned against the backdrop of a burgeoning global e-commerce market projected to expand by 15% annually through 2030, Amazon appears well-positioned to leverage this growth trajectory.
Amplifying Profits through Ad Sales
Amazon’s success story extends to its advertising endeavors, with a 25% increase in ad expenditure from sellers witnessed in the third quarter. This uptick in high-margin ad sales has contributed to the company’s generation of $21.4 billion in free cash flow in the 12 months ending Sep. 30, 2023.
However, as the stock commands a valuation of approximately 95 times trailing free cash flow, potential investors must carefully weigh the risks associated with a possible reversal in its upward trajectory. Amazon’s path to fortifying its bottom line hinges on the continued influx of cloud customers into AWS, and the entrenched position of its e-commerce platform. While the company’s valuation can be justified by the sheer magnitude of the e-commerce and cloud services markets, investors averse to risk should explore safer investment options.
It remains crucial for prospective investors to critically evaluate the recommendations set forth by the Motley Fool Stock Advisor analyst team before diving into Amazon stock. The service provides invaluable insights into portfolio construction and has consistently outperformed the S&P 500 since 2002, offering a compelling blueprint for investment success.
*Stock Advisor returns as of January 8, 2024
