Amazon.com (AMZN) is off to a strong start to 2024, with its stock soaring after its recent earnings report. The tech giant's stock is currently nearing record levels for 2021. But Amazon must continue to improve the profitability of its massive online retail business while fending off challengers in the cloud computing market.
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With a market capitalization approaching $1.8 trillion, Amazon is one of the most valuable companies in the world. The Seattle-based company is a market leader in e-commerce and cloud computing through its Amazon Web Services division. Additionally, the company turned to generative artificial intelligence and a burgeoning advertising business to fuel growth. But the so-called Everything Store operator is also overseeing a major antitrust battle with the U.S. government.
So, is Amazon stock a buy? Here's what you need to know about the recent moves in tech giant AMZN stock.
Amazon stock approaches record high in 2021
Amazon stock is nearing its all-time high set in 2021. This will likely signal a tough 2022 recovery for the company.
Amazon stock closed Monday's trading at 172.34. The stock price has increased about 15% since the beginning of the year. Shares soared on February 1 after the company announced better-than-expected fourth-quarter earnings and a 14% increase in revenue.
Wall Street analysts expect Amazon to hit new all-time highs. Of the 60 Amazon stock analysts who follow the company, 98% maintain a buy rating, according to FactSet. Additionally, analysts have an average 12-month price target for Amazon stock of $206, according to FactSet data. This represents an increase of nearly 20% from AMZN's February 12 closing price.
Amazon's fourth quarter performance
Analysts raised Amazon's price target and forecast following the fourth quarter earnings report.
In its financial results released on February 1, Amazon said it earned $1 per share on revenue of $170 billion. For the quarter ending December. Analysts expect the company to report revenue of $165.9 billion and earnings of 80 cents per share in the December quarter, according to FactSet.
Sales for the quarter were up 14% year-over-year, and earnings were up significantly from 3 cents per share in the year-ago period.
Meanwhile, Amazon Web Services' revenue rose 13% year over year to $24.2 billion, matching expectations for the hot cloud business.
Amazon stock rose 8% in overnight trading. William Blair analyst Dylan Carden wrote in a note to clients on the same day that Amazon “clearly performed well with a good outlook and room for continued upside.”
Expanding profits in retail business
The profitability of Amazon's retail business stood out to analysts. Amazon's North American retail unit posted an operating profit of $6.5 billion in the December quarter, compared with a loss of $240 million a year earlier.
The segment's sales increased 13% to $105.5 billion.
Chief Executive Officer Andy Jassy said the restructuring of its U.S. fulfillment network has made the delivery of goods more efficient.
“In addition to strong revenue growth, which has contributed to improved leverage across the business, we continue to make progress in reducing our cost of service,” Jassy said in an earnings call. “The fourth quarter is our busiest period of the year, supported by an increasingly larger and more integrated operational network.”
Amazon's business selling advertising within its website, apps and streaming channels is also booming, boosting profits. Advertising sales increased 27% year over year to $14.7 billion. Advertising is the company's fastest growing area.
Evercore ISI analyst Mark Mahaney said this quarter marked Amazon's highest operating profit ever.
“Three fundamental catalysts are at play,” Mahaney wrote to clients in response to the report. “AWS's growth is accelerating, with our North American retail division reaching record operating margins and the company as a whole reaching record free cash flow margins.”
Amazon stock: AWS growth accelerates
Amazon's results also eased some concerns about its profit-driving cloud computing business.
Amazon Web Services' revenue rose 13% year over year, an improvement from the segment's 12% growth rate in the third quarter. Analysts are looking for signs that AWS will reaccelerate its revenue after slowing last year.
AWS is the leading cloud provider by market share, providing cloud computing power and storage to millions of businesses. It also generated two-thirds of Amazon's $37 billion operating profit in 2023.
But investors have been watching the business with concern since early last year. For one, revenue growth has slowed as companies cut some of their computing costs.
Additionally, there are concerns that Amazon's position is not as good. microsoft (MSFT) Generate AI business to win.
Ahead of Amazon's fourth-quarter report, Piper Sandler analyst Thomas Champion wrote in a note to clients that 70% of the questions he heard from investors were about AWS.
However, according to a letter Champion sent to customers following the report, AWS's fourth-quarter growth was “off the mark.”
Amazon's AI promotion
Market analysts expect generative AI to increase enterprise spending on cloud services.In other words, the three major providers, Amazon, Microsoft, and Google's parent company, alphabet (GOOGL) will fight to lead the new market.
Microsoft, the second largest cloud service provider after AWS, was an earlier adopter of generative AI. Just weeks after ChatGPT was introduced late last year, Microsoft is unleashing the ongoing AI frenzy, as part of a strategic partnership with OpenAI, the startup behind the hugely successful chatbot. They reportedly agreed to invest $10 billion.
And Google has a long track record as a leader in AI research. The search giant recently launched Gemini, a large language model aimed at competing with ChatGPT.
But AWS is making some AI moves of its own. In September, Amazon signed its own AI contract. It has 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. This service enables Amazon's AWS users to build generative AI applications using a variety of large-scale language models.
Additionally, Amazon used its annual AWS re:Invent conference in November to announce a new chatbot for enterprises, a deeper partnership with the AI chip market leader. Nvidia (NVDA), and updated proprietary AI chips.
During the company's Feb. 1 earnings call, Jassy said generative AI is a “broad-based” focus for Amazon and will generate “tens of billions of dollars” in revenue over the next few years.
“We continue to see a trend of customers wanting to do their long-term Gen AI work on AWS,” Jassy told analysts.
However, Microsoft and Google both saw overall growth in their cloud businesses accelerate in the fourth quarter. Therefore, Amazon's fight to defend its Cloud King title is worth watching for investors.
Will regulators eat up Amazon stock?
Meanwhile, Amazon is staring down perhaps the biggest legal battle in its 30-year history. Regulators are challenging Amazon's market power, and the company is likely to come under increased scrutiny in the coming years.
Amazon's regulatory problems became clearer on September 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 distributors. Amazon rejected the allegations, arguing that the FTC was “erroneous on facts and law, and we look forward to litigating the case in court,” the company said in a statement.
JPMorgan analyst Doug Anmuth said in an Oct. 3 note to clients that the lawsuit is “mostly expected, and it will be difficult to prove that AMZN illegally maintains monopoly power.” “I think so,” he said.
Technical analysis of Amazon stock
Amazon is one of the Magnificent Seven stocks that fueled the stock market rally in 2023. Additionally, AMZN stock's technical rating improved after the earnings report after a rough September.
Amazon stock is trading well above its recent buy point of 145.86 in a consolidation pattern, according to IBD MarketSmith. The stock has built on its previous strong entry, rebounding from its 10-week moving average for the week ending January 12th.
The IBD Stock Checkup tool gives Amazon stock a high Relative Strength Rating of 91 out of 99, indicating that the stock has outperformed most of the market over the past 12 months.
Amazon stock also has the highest IBD Composite Rating of 98 out of 99. This score means AMZN stock currently outperforms 98% of all other stocks in terms of key performance metrics and technological capabilities.
Additionally, Amazon stock has an A cumulative/distribution rating. This rating analyzes changes in a stock's institutional price and volume over the past 13 weeks. The current rating indicates that there are more buys than sells by financial institutions.
Here is a guide to understanding IBD's rating system.
Amazon market capitalization
You can check Amazon's current stock price here. Amazon's market capitalization was $1.7 trillion as of the market launch on February 13th. Here's how the stock has grown over time.
| period | AMZN stock price increase rate (%) | S&P 500% Profit |
|---|---|---|
| Profit in 2023 | 81 | 24.2 |
| Previous year | -49.6 | -19 |
| Last 3 years (2019-2022) | 13.7 | 54 |
| Last 10 years (2012-2022) | 94,622 | 203 |
| Amazon IPO* since 1997 | 249,114 | 493 |
*Prices as of February 13th market opening.
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