Tech giant Amazon.com, Inc. (AMZN), known for revolutionizing e-commerce and cloud computing, is now setting its sights on artificial intelligence (AI) as a cornerstone of its future growth. Over the past months, the company has made significant strides in expanding its AI services, aiming to redefine how businesses and consumers interact with technology.
From launching a multimillion-dollar initiative to promote generative AI in the public sector to introducing advanced AI chatbots and developer tools under AWS, AMZN is not just embracing AI but driving its adoption across industries.
As the company continues to innovate in AI, its stock performance has mirrored its ambitious strides. Shares of AMZN have gained 41.8% over the past nine months and 39.5% over the past year to close the last trading session at $187.93.
Let’s delve into AMZN’s latest advancements and fundamental aspects that could influence its performance in the near term:
Amazon's Diverse AI Service Expansion
Amazon's newest push into AI services is making waves, especially with its $50 million AWS Worldwide Public Sector Generative Artificial Intelligence Impact Initiative. This two-year program aims to help public-sector organizations and their tech partners innovate using Amazon Web Services' generative AI offerings.
With AI rapidly gaining recognition among local and state governments, AMZN's initiative, running until June 30, 2026, offers AWS promotional credits, training, and technical expertise to foster innovation. Awards will be granted based on customer experience, product maturity, and existing AI skills.
As the company aims to enhance its AI presence in the public sector, its cloud services continue to gain traction among local and state agencies. In the enterprise realm, AMZN is doubling down on AI with the introduction of Q, an AI chatbot designed to assist AWS users by learning from a company’s data and workflows. This tool allows employees to ask questions about various aspects of their business, such as coding, HR information, or logistics.
Moreover, Amazon Q Apps further simplifies building generative AI-based apps, even for employees without coding experience. Users can describe the app they want, and Q will generate it for them.
While AMZN’s AI focus is largely on business applications, it has also released consumer-facing AI tools, like Rufus, an AI shopping assistant launched in February to help customers with product inquiries on the Amazon retail site. Such broader AI initiatives by the company demonstrate its commitment to driving innovation and efficiency across both public and private sectors.
Solid Financial Performance
In the first quarter that ended March 31, 2024, AMZN’s net sales increased 12.5% year-over-year to $143.31 billion. Amazon Web Services (AWS) continued to be a strong performer, with sales of $25.04 billion, up 17.2% year-over-year.
Its operating income improved by 220.6% from the year-ago value to $15.31 billion. The company’s net income of $10.43 billion or $0.98 per share indicates robust growths of 228.8% and 216.1% from the prior year’s period, respectively.
As of March 31, 2024, AMZN's cash and cash equivalents amounted to $72.85 billion, compared to $73.39 billion as of December 31, 2023. AMZN’s trailing-12-month operating cash flow surged 82% year-over-year to $99.15 billion. Its free cash flow also saw a significant turnaround in the same period, with an inflow of $50.15 billion, compared to an outflow of $3.32 billion in the prior year’s period.
Impressive Historical Growth
AMZN’s revenue and EBITDA have grown at respective CAGRs of 12.1% and 20.5% over the past three years. The company’s EBIT has increased 19.5% over the same timeframe, while its net income and EPS have improved at CAGRs of 11.9% and 10.7%, respectively.
Also, the company’s tangible book value and total assets have grown at CAGRs of 30.1% and 18%, respectively, over the past three years.
Optimistic Analyst Estimates
The consensus revenue estimate of $148.53 billion for the fiscal second quarter (ended June 2024) represents a 10.5% increase year-over-year. The consensus EPS estimate of $1.01 for the current quarter indicates a 56% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
Additionally, AMZN’s revenue and EPS for the current year (ending December 2024) are expected to grow 11.2% and 57.2% year-over-year to $638.93 billion and $4.56, respectively.
Robust Profitability
AMZN’s 47.59% trailing-12-month gross profit margin is 29.6% higher than the industry average of 36.74%. Its trailing-12-month EBITDA and net income margins of 16.35% and 6.38% exceed the industry averages by 44.5% and 31.9%, respectively. Similarly, its trailing-12-month 9.69% levered FCF margin is 78.4% higher than the industry average of 5.43%.
Furthermore, the stock’s trailing-12-month ROCE and ROTA of 20.30% and 7.10% compare favorably to the respective industry averages of 11.79% and 4.22%.
POWR Ratings Exhibit Bright Prospects
AMZN’s sound outlook is apparent in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AMZN has a B grade for Sentiment, aligning with analysts' optimistic estimates. It also earned a B for Quality, which is consistent with its robust profit margins.
Similarly, the stock has a B grade for Momentum. It is trading above its 50-day and 200-day moving averages of $187.88 and $165.35, respectively.
AMZN is ranked #8 out of 52 stocks in the B-rated Internet industry. Click here to access AMZN’s Growth, Value, and Stability ratings.
Bottom Line
Amazon's strategic expansion into AI services marks a pivotal move aimed at leveraging technology across multiple sectors, from public agencies to private enterprises and retail consumers. By embedding AI capabilities into its e-commerce platforms and AWS cloud services, the company enhances operational efficiency and positions itself for sustained growth.
With impressive year-to-date returns exceeding 20%, driven by robust AI investments, AMZN’s stock performance reflects investor confidence in its innovative strategies. Moreover, given its strong financial performance in the latest quarter, solid profitability, and sustained momentum, loading up on AMZN shares seems wise.
How Does Amazon.com, Inc. (AMZN) Stack Up Against Its Peers?
While AMZN has an overall rating of B, investors could also check out these other stocks within the B-rated Internet industry with A (Strong Buy) ratings: Yelp Inc. (YELP), Dingdong (Cayman) Limited (DDL), and Travelzoo (TZOO).
To explore more A and B-rated Internet stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AMZN shares were trading at $182.71 per share on Thursday afternoon, down $5.22 (-2.78%). Year-to-date, AMZN has gained 20.25%, versus a 17.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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