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Amazon (AMZN) gained 81% in 2023, its best year on the stock market since 2015. But for Amazon stock to continue its run, investors will be watching whether the tech giant can continue improving the profitability of its massive online retail business while fending off challengers in the cloud-computing market.
With a market cap nearing $1.6 trillion, Amazon is among the world’s most valuable companies and a 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.
This first big test of 2024 for Amazon comes this week. The company will publish its fourth-quarter earnings on Thursday, after trading closes.
Overall, sentiment is positive for the company heading into earnings. Of the 59 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 184.96 for Amazon stock, according to FactSet. That implies 16% upside from AMZN’s opening price on Jan. 29.
Amazon is expected to post fourth-quarter revenue of $166 billion, according to FactSet analyst consensus, up 11.2% from the same period last year. Earnings are expected to jump an eye-popping 2,500% to 80 cents per share.
Analysts expect advertising will remain its fastest growing division. Sales of ads within Amazon’s website and apps are expected to rise 21% to $14 billion, according to FactSet. Meanwhile, Wall Street projects that fees collected from third-party sellers on Amazon will be the second fastest revenue source. Third-party seller service sales are projected to rise 16% to $42 billion for the quarter, according to FactSet.
The quarter appears likely to cap off a turnaround year for Amazon. For the full fiscal 2023, analysts project the company will post a profit of $2.68 per share, compared to a 27 cent loss in 2022.
But there are a few debates percolating ahead of Amazon’s earnings date. Top among them is the health of Amazon Web Services. AWS is the top cloud provider by market share, providing cloud computing power and storage to millions of business. It is also a key profit driver for Amazon.
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. BofA Securities analyst Justin Post said such concerns are a top stock overhang heading into the company’s earnings report.
Still, Post told clients he anticipates AWS revenue will reaccelerate this year against easier comparisons in 2023, while AI demand will spill to all providers.
Meanwhile, Bernstein analyst Mark Schmulik said in a recent client note that investors are growing more cautious about AWS’s fourth-quarter performance. But web data tracked by Bernstein analysts point to AWS revenue growth accelerating for the period. Bernstein is projecting 13.5% sales growth for AWS in the fourth quarter, compared to the 12% year over year sales increase in the third quarter.
“Overall our long term outlook remains unchanged, as we expect to see AWS revenue growth continue to re-accelerate this year and see a path towards high teens AWS growth in the outer periods,” Schmulik wrote.
The consensus among analysts projects AWS will post $24.2 billion in fourth-quarter revenue, according to FactSet, a 13.3% increase. Operating income from the business is projected to rise 33% to $6.9 billion.
Further, investors will be listening closely for commentary of Amazon’s generative AI progress. Amazon has recently pushed back on the narrative it has fallen behind in the new, fast-growing market.
“In our best estimation, the amount of growth we’re seeing and the absolute amount of generative AI business we’re seeing compares very favorably with anything else I’ve seen externally,” Amazon Chief Executive Andy Jassy said on the company’s third-quarter earnings call in October.
But 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.
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.
The products underscored Amazon’s bid to defend its lead in the cloud services provider market, which analysts expect will grow as more companies embrace compute-heavy generative AI products.
“The conference and the plethora of new product innovations from AWS continue to support its role as a leader in the (cloud services provider) market, with the company making a clear push to take back the narrative on GenAI—where Microsoft had the clear early lead at the beginning of this year,” William Blair analysts Dylan Carden and Arjun Bhatia wrote in a client note following the conference.
Elsewhere, investors will be closely watching the strength of Amazon’s holiday sales.
Amazon called the kick-off to holiday shopping following Thanksgiving its “biggest ever.” But the company did not disclose exact numbers. Investors will have to wait for a clearer picture from company’s fourth-quarter earnings release, expected later this month or early in February.
In a news release after Cyber Monday, Amazon said customers purchased more than 1 billion items from Nov. 17 through Nov. 27 — the 11 day period the company considered its extended Black Friday and Cyber Monday event.
Meanwhile, Adobe Analytics estimated online shoppers spent 5% more during the holiday season compared to 2022, boosted by record levels of discounts and deferred payments options.
In the 2022 holiday period, Amazon saw its fourth-quarter e-commerce sales fall 2.3%, year over year, to $64.5 billion. That capped a year in which the company’s e-commerce sales slowed more broadly.
But sales for the Everything Store appear back on track. The company’s e-commerce sales category — which it calls online stores — recorded $161 billion in revenue through the first nine months of 2023, up 4% from the same period last year.
Amazon stock analysts polled by FactSet expect the company’s December quarter sales to climb 7% year over year to $69 billion.
Analysts are also looking for improvements to Amazon’s operating income. The company last year completed a restructuring of its U.S. fulfillment network that the company says has made delivering products more efficient.
Amazon is coming off a strong earnings report. For the quarter that ended in September, Amazon reported adjusted earnings of 94 cents a share, up 236% from the same period last year. Revenue increased 13% year over year to $143.1 billion.
Amazon stock climbed by nearly 8% in trading immediately following the report. Further, shares are up more than 20% since the report.
E-commerce sales were up 7% to $57.3 billion. Wall Street analysts projected sales of $56.97 billion.
Meanwhile, the e-commerce giant collected $34.3 billion from third-party sellers, compared to analyst projections of $33.4 billion.
Advertising sales, meanwhile, totaled $12.1 billion, up 26% from the same period last year.
Finally, operating income increased to $11.2 billion in the third quarter, compared with $2.5 billion for the same period last year. Cost-cutting contributed to that number, including significant layoffs.
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.
AMZN shares opened trading at 154.85 on Jan. 23, trading well above a recent 145.86 buy point from a consolidation pattern, according to IBD MarketSmith. Further, AMZN stock hit a 52-week high of 157.17 during intraday trading on Jan. 11.
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 94 out of a best-possible 99. The score means AMZN stock currently tops 93% of all other stocks in terms of key performance metrics and technical strength.
Further, Amazon stock holds an Accumulation/Distribution Rating of B. 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 $1.64 trillion, as of market open Jan. 29. Here is how the stock has grown over time:
*Prices as of market open Jan. 29.
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Amazon still holds the biggest piece of the cloud computing market. But Microsoft and Google are gaining ground. (© Dave Cutler)
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