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Amazon.com (AMZN) has started strong out of the gate in 2024, with a recent earnings report that sent its stock soaring. Now the tech giant’s stock approaching record levels of 2021. But Amazon will need to keep up its progress in improving the profitability of its massive online retail business, while also fending off challengers in the cloud-computing market.
With a market cap nearing $1.8 trillion, Amazon is among the world’s most valuable companies. The Seattle-based company is the market leader in e-commerce, as well as cloud-computing through its Amazon Web Services division. Beyond that, the company has turned to generative artificial intelligence and a booming advertising business to boost its growth. But the so-called “Everything Store” operator is also staring down a major antitrust battle with the U.S. government.
So, is Amazon stock a buy? Here’s what to know about recent action from the tech giant’s AMZN stock.
Amazon stock is approaching a record high it reached in 2021. That would mark a recovery for the company after a rough 2022.
Amazon stock closed trading Monday at 172.34. Shares are up about 15% from the start of the year. Shares jumped on Feb. 1, after the company reported better-than-expected earnings and a 14% revenue increase for the fourth quarter.
Wall Street analysts expect Amazon to reach a new high. Of the 60 Amazon stock analysts following the company, 98% hold a buy rating, according to FactSet. Further, FactSet data shows those analysts have, on average, set a 12-month price target of 206 for Amazon stock, according to FactSet. That implies nearly 20% upside from AMZN’s closing price on Feb. 12.
Analysts raised their target prices and estimates for Amazon following its fourth quarter earnings report.
In results published Feb. 1, Amazon said it earned $1 per share on sales of $170 billion for the December-ended quarter. Analysts projected the company would post earnings per share of 80 cents on $165.9 billion in sales for the December quarter, according to FactSet.
Sales for the quarter increased 14% year over year, while earnings surged from 3 cents a share in the year-ago quarter.
Meanwhile, sales for Amazon Web Services increased 13% year over year to $24.2 billion, in line with expectations for the closely watched cloud business.
Amazon stock jumped 8% in next-day trading. William Blair analyst Dylan Carden wrote in a client note that day that Amazon provided “a decidedly good print, with better outlook and room for continued upside.”
The profitability of Amazon’s retail business stood out to analysts. Operating income from Amazon’s North America retail division generated $6.5 billion in operating income during the December quarter, compared to a $240 million loss last year.
Sales for the division climbed 13% to $105.5 billion.
Chief Executive Andy Jassy said a restructuring of its U.S. fulfillment network has made delivering products more efficient.
“In addition to the strong top line growth, which helped to drive improved leverage throughout our businesses, we continue to make progress on reducing our cost to serve,” Jassy said on the company’s earnings call. “The fourth quarter is our busiest time of year, supported by an increasingly large and integrated operations network.”
A booming business selling advertisements within Amazon’s website, apps and streaming channels is also boosting margins. Advertising sales grew 27% year over year to $14.7 billion. Ads are the company’s fastest-growing segment.
Evercore ISI analyst Mark Mahaney noted that this quarter marked Amazon’s highest-ever operating income.
“Three fundamental catalysts are playing out,” Mahaney wrote to clients following the report. “AWS growth is accelerating, the North American Retail segment is ramping to record-high operating margins, and the company as a whole is ramping to record-high free cash flow margins.”
Amazon’s earnings also eased some concerns about its profit-driving cloud-computing business.
The 13% year-over-year sales growth for Amazon Web Services marked an improvement from a 12% growth rate for the division in the third quarter. Analysts have been looking for signs that AWS could reaccelerate sales after a slowdown for growth last year.
AWS is the top cloud provider by market share, providing cloud computing power and storage to millions of business. It also provided two-thirds of Amazon’s $37 billion in operating income for 2023.
But investors have been watching the business with some concern since early last year. For one, revenue growth has slowed as companies cut back on some computing costs.
Plus, there are concerns Amazon is not positioned as well as Microsoft (MSFT) to win generative AI business.
Heading into Amazon’s fourth-quarter report, Piper Sandler analyst Thomas Champion wrote in a client note that 70% of the questions he was hearing from investors were about AWS.
But, as Champion wrote to clients following the report, AWS’ growth for the fourth quarter “hit the bullseye.”
Market analysts expect that generative AI will drive companies to spend more on cloud services. That means the big three providers of Amazon, Microsoft and Google parent Alphabet (GOOGL) will be battling to lead the new market.
Microsoft, the No. 2 cloud services provider behind AWS, was quicker to embrace generative AI. Just weeks after ChatGPT was introduced late last year, Microsoft reportedly agreed to invest $10 billion as part of a strategic partnership with OpenAI, the startup behind the wildly successful chatbot that unleashed the ongoing AI frenzy.
And Google has a long track record as an AI research leader. The search giant recently launched Gemini, a large language model intended to compete with ChatGPT.
But AWS has made AI moves of its own. In September, Amazon struck an AI deal of its own. It agreed to invest up to $4 billion in Anthropic, a rival to ChatGPT-creator OpenAI.
Before that, the tech giant launched Amazon Bedrock in April. The service allows users of Amazon’s AWS to build generative AI applications using a range of large language models.
Further, Amazon in November used its annual AWS re:Invent conference to announce a new chatbot for businesses, a deeper partnership with AI chip market leader Nvidia (NVDA), and an updated AI chip of its own.
During the company’s Feb. 1 earnings call, Jassy he said generative AI is a “pervasive” focus for Amazon that will drive “tens of billions of dollars” in revenue in the next several years.
“We continue to see momentum around customers wanting to do their long-term Gen AI work with AWS,” Jassy told analysts.
Microsoft and Google, however, both recorded faster overall growth for their cloud businesses in the fourth quarter. So the battle for Amazon to defend its title of cloud king bears watching for investors.
Meanwhile, Amazon is staring down what is likely the biggest legal fight in its 30-year history. Regulators are challenging Amazon’s market power and the company likely will grapple with intense scrutiny in the coming years.
Amazon’s regulatory problems came into sharp focus on Sept. 26 when the Federal Trade Commission and 17 state attorneys general filed a major antitrust lawsuit against Amazon.
The FTC accuses the company of using its market power to inflate prices and overcharge merchants. Amazon rejects the allegations, arguing that the FTC is “wrong on the facts and the law, and we look forward to making that case in court,” the company said in a statement.
In an Oct. 3 client note, JPMorgan analyst Doug Anmuth said the lawsuit “was very much as expected, and we believe it will be challenging to prove that AMZN illegally maintains monopoly power.”
Amazon is one of the Magnificent Seven stocks that fueled the stock market rally in 2023. Further, AMZN stock’s technical ratings have improved after its earnings report, following a rough September.
Amazon shares are trading well above a recent 145.86 buy point from a consolidation pattern, according to IBD MarketSmith. Shares are also extended from its last good entry, a bounce off its 10-week moving average in the week ended Jan. 12.
The IBD Stock Checkup tool shows Amazon stock with a Relative Strength Rating of 91 out of a best-possible 99, indicating the stock has outperformed most of the market over the past 12 months.
Amazon stock also holds an IBD Composite Rating of 98 out of a best-possible 99. The score means AMZN stock currently tops 98% of all other stocks in terms of key performance metrics and technical strength.
Further, Amazon stock holds an Accumulation/Distribution Rating of A. That rating analyzes price and volume changes in institutional ownership for a stock over the past 13 weeks. The current rating indicates more buying than selling by institutions.
Here is a guide to understanding IBD’s rating system.
You can check for Amazon’s current stock price here. Amazon’s market cap is $1.7 trillion, as of market open Feb. 13. Here is how the stock has grown over time:
*Prices as of market open Feb. 13.
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Is Amazon Stock A Buy? Tech Giant Gains Steam On Strong Q4 Earnings – Investor's Business Daily
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