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After the group's stellar rally in 2023, the performance of “Magnificent 7” stocks has been mixed this year. Unlike last year, when mega-cap tech names rallied across the board, Apple (AAPL) and Tesla (TSLA) are in the red in 2024, even as the Nasdaq Composite ($NASX) has gained over 8%.
Conversely, Amazon (AMZN), Nvidia (NVDA), Alphabet (GOOG), and Meta Platforms (META) have continued to rally in 2024. Specifically, Amazon stock is up almost 19% YTD, and is eyeing its all-time high of $188.65, set in July 2021. Here’s how high AMZN stock could go in 2024.
Analysts See Double-Digit Gains from Amazon
Amazon has a mean target price of $202.49, which is 12% higher than yesterday’s closing prices. Its Street-high target price of $230 implies an upside of 27.2% over the next 12 months.
Analysts are overwhelmingly bullish on Amazon, and multiple brokerages listed it as a top pick for 2024. It has a consensus rating of “Strong Buy,” and is the highest-rated stock among the Magnificent 7.
Notably, analysts raised Amazon’s target prices after the company’s previous two earnings calls, as it beat on both the top line and the bottom line. We are now headed into the Q1 earnings confessional, and analysts could revise Amazon's target price once again after that release.
Amazon’s Profits Spiked in 2023
Amazon posted a record net profit of $10.6 billion in Q4, blowing away the previous record of $9.9 billion set in the previous quarter. The company’s operating income surged to $13.2 billion in Q4, up almost five times from the year-prior quarter, and over $2.2 billion higher than the upper end of its guidance.
Management forecast revenues between $138 billion and $143.5 billion in Q1, which implies YoY growth between 8%-13%. Amazon expects operating income to come in between $8 billion to $12 billion in Q1- which, even at the lower end, is significantly higher than the $4.8 billion that it reported in Q1 2023.
Importantly, Amazon is back to being a cash flow behemoth, and generated free cash flows of $36.8 billion in 2023. That was quite a turnaround for the company after posting negative free cash flows in the previous two years.
Here’s Why AMZN Stock’s Forecast Looks Bullish
Despite the rally over the last year, which has brought Amazon stock within striking distance of its all-time highs, I believe the stock still has reasonable upside from these levels, and is on track to become the next $2 trillion company. Here’s why I believe AMZN stock could continue to rise from these levels.
- Stabilizing top-line growth: Amazon’s topline growth has stabilized. This includes the enterprise-focused Amazon Web Services (AWS) business, whose revenues rose 13% YoY in Q4.
- Advertising growth could remain strong: In 2023, Amazon’s advertisement revenues rose 26% and reached $46.9 billion. The company’s ad revenues could continue to grow at a brisk pace, especially after it launched the ad-supported tier for Prime users.
- Generative AI: Generative AI, which Amazon’s CEO Andy Jassy termed an “area of pervasive focus and investment” for the company, is another key long-term growth driver. While the business currently does not contribute much to Amazon’s revenues, Jassy said during the Q4 earnings call, “We believe it will ultimately drive tens of billions of dollars of revenue for Amazon over the next several years.”
- Emerging business areas: Amazon's business-to-business (B2B) platform, Amazon Business, is another potential growth driver to watch, and so is its pharmacy business. These emerging businesses should help support the company's revenue growth going forward.
- Continued focus on efficiency and operating leverage: In 2022, Amazon admitted to overinvesting in its capacity - which not only negatively impacted its cash flows, but also led to margin compression. Inflation was yet another factor that dampened Amazon’s profitability. However, things have since turned around, and Amazon is now better leveraging the fixed costs. Coupled with the relentless focus on cost cuts and efficiency, that could lead to superior profitability and cash flows.
Finally, the next 12-month (NTM) price-to-earnings (PE) multiple of 42.8x looks reasonable, considering the 47% earnings per share growth that the company is expected to deliver in 2024. While AMZN stock is already up sharply in 2024, it still has room to run higher from these levels, considering the reasonable valuations and strong growth outlook.
On the date of publication, Mohit Oberoi had a position in: AMZN , AAPL , META , TSLA , NVDA , GOOG . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
