Getting started in the stock market does not require a large investment. In fact, even $300 is enough to start with if you are savvy and pick a stock with long-term potential.
One such stock is Amazon (AMZN). The company is making full use of artificial intelligence (AI) to boost its revenue and earnings, and Wall Street believes Amazon has excellent long-term potential. Analysts have given AMZN stock a “Strong Buy” consensus rating.
Amazon Stock: A Growth Powerhouse
When investors think about Amazon, the first thing that probably comes to mind is retail. With a market capitalization of $2.5 trillion, Amazon has dominated the e-commerce industry for the past few years. However, e-commerce is no longer its most profitable sector. Its cloud computing division, Amazon Web Services (AWS), accounts for the majority of profits. AWS is also the leading player in the global cloud computing market, with a 31% share, surpassing Microsoft's (MSFT) Azure and Alphabet's (GOOGL) Google Cloud.
Not only has Amazon expanded its business into AI, healthcare, logistics, and entertainment, it has also dipped its hands into nuclear power. In October, the company announced it had signed "three new agreements to support the development of nuclear energy projects."
Amazon had an incredible year, with its stock rising 52.5% year-to-date, outperforming the S&P 500 Index's ($SPX) 28% gain.
In the third quarter, AWS generated $27.5 billion in revenue, up 19% from the previous year's quarter. Total net sales increased by 11% to $158.9 billion, and earnings rose 52.1% year-over-year to $1.43 per share.
Amazon signed several new AWS agreements with large companies during the quarter, including Sony (SONY), New Zealand Banking Group Limited, T-Mobile (TMUS), Toyota (TM), National Australia Bank, Booking.com (BKNG), Veeva (VEEV), and others. AWS's strength has consistently increased Amazon's earnings and cash flows, allowing it to reinvest in other growth initiatives and explore new business lines such as AI, logistics, and healthcare.
Besides AWS and e-commerce, Amazon Prime is another source of recurring revenue for the company due to the services it offers to members such as free and same-day delivery, unlimited video streaming, and exclusive deals. The company’s advertising business has grown rapidly, capitalizing on its rich consumer data to offer targeted ads.
The company generated free cash flow of $47.7 billion for the trailing 12 months, which ended Sept. 30. Amazon also reported $71.7 billion in cash, cash equivalents, and restricted cash. With a low debt-to-equity ratio of 0.21x, Amazon's balance sheet is strong enough to diversify its operations and continue investing in AI.
Management expects fourth-quarter revenue to grow by 7% to 11% year-over-year, to range between $181.5 billion and $188.5 billion. Analysts predict that Amazon's earnings will rise by 76.8% in 2024, and another 20.2% in 2025. Trading at 36 times forward 2025 earnings, the stock may appear overpriced.
However, I believe Amazon's continued dominance in retail and cloud computing, as well as its ability to innovate and diversify into new industries, will pay off in the long run, justifying the premium paid by long-term investors.
Is AMZN Stock a Buy Now?
On Wall Street, AMZN stock is a “Strong Buy.” Recently, Baird analyst Colin Sebastian increased his target price for the stock to $260 from $220, while maintaining a “Strong Buy” rating. Sebastian is confident in Amazon's growth in e-commerce and advertising, as well as "strong AWS growth from positive cloud services trends and incremental AI/GenAI contributions."
Similarly, Jefferies raised the target price from $235 to $275, citing Amazon's strong AI revenue potential after significantly improving its AI offerings in 2024.
Out of the 49 analysts covering the stock, 45 have a “Strong Buy” rating, while three recommend a “Moderate Buy” and one rates it a “Hold.” Its mean target price is $238.96, which implies upside potential of 2.6% from current levels.
Furthermore, the high target price of $285 suggests that the stock could rally as much as 22.3% over the next 12 months.
