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Global tech giant Amazon (AMZN) runs a diversified business that includes e-commerce, entertainment, cloud computing, and more. Now, by integrating artificial intelligence (AI) into all of its offerings, the company is experiencing explosive growth. This trend is likely to continue as AI advances.
Over the last 10 years, Amazon stock has returned a massive 975%, driven by growth in all of its segments. The stock is up 20% year-to-date, compared to an 11% gain for the S&P 500 Index ($SPX).
Based on the Street-high target price of $230, AMZN stock is expected to soar around 27% this year. Let’s find out how that might happen.
What Is Amazon Doing Right?
Amazon has established its dominance in the e-commerce market through its massive presence in online retail. Beyond its core e-commerce business, Amazon has successfully expanded into a variety of other businesses. Amazon Web Services (AWS), its cloud computing division, has emerged as a significant revenue generator. The company has consistently produced impressive results. Its overall revenue growth has been robust, owing to high consumer demand and expanding product offerings. And now, with the integration of AI, Amazon's fundamentals are strengthening.
In its recently reported Q4 2023, AWS brought in sales of $24.2 billion, an increase of 13% year-over-year. Net sales in Q4 also surged 14% to $170 billion, exceeding the consensus estimate by $3.7 billion.
Despite significant investments in infrastructure and technology, the company has maintained healthy profitability, thanks in part to the high-margin cloud computing business and growing demand for cloud services. Amazon's profits increased significantly in the fourth quarter to $1.00 per share from $0.03 per diluted share in the year-ago quarter.
What Does the Future Hold For Amazon?
With the help of AI, Amazon can explore new growth opportunities in the global cloud computing market, which is expected to be worth $1.26 trillion by 2028. AWS currently has a 31% market share in cloud computing, competing against Microsoft's (MSFT) Azure and Alphabet's (GOOGL) Google Cloud.
Furthermore, Amazon's expansion into high-growth industries like healthcare and autonomous vehicles demonstrates the company's ambition and willingness to explore new growth opportunities.
Amazon also has a lot of scope to drive growth from advertising as the global advertising market recovers. Revenue from advertising increased sequentially from $12.06 billion in Q3 to $14.6 billion in Q4, marking an improvement of 26% year-on-year.
Furthermore, Amazon generated positive free cash flow of $36.8 billion in 2023, which could be used to fund new AI-integrated product offerings.
What Does Wall Street Say About AMZN Stock?
Turning to Wall Street, Amazon stock is a “ strong buy.” Of the 45 analysts covering AMZN, 41 rate it a “strong buy,” three analysts recommend a “moderate buy,” and one rates it a “hold.” The average price target stands at $202.49, which implies about 11.9% potential upside from current levels. Furthermore, the Street-high target price is $230, which indicates an upside of 27% in the next 12 months.
Analysts predict that Amazon's revenue will increase by 11.6% year on year to $641.6 billion in 2024, with earnings up 45% compared to 2023. Revenue and earnings could rise by 11.4% and 28%, respectively, in 2025.
Amazon stock appears to be expensive, trading at 42 times forward earnings for 2024. However, given the explosive growth that AI has the potential to bring to all of its segments, the premium may be justified.
The Bottom Line on AMZN Stock
Amazon has strengthened its position to reduce risk by diversifying into a variety of high-growth sectors. As it expands its footprint and extends its revenue streams, Amazon is well-positioned to capitalize on the evolving AI market.
I believe the company has the potential to easily surpass its Street-high target price this year. However, Amazon makes a compelling investment case not just for 2024, but for the long term for those who are bullish on the future of e-commerce and technology.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
