AMZN Soars to $2 Trillion: Time to Buy In?
Jackpot - $2 Trillion Club.
On Wed, 26 Jun 2024, Amazon netted a $2 trillion market capitalization for the first time ever, becoming the 5th companies in the world over $2 trillion valuation.
This comes about as recent AI-driven tech rally continues to mint new milestones.
Amazon’s market cap eclipsed $2 trillion in early Wednesday afternoon as its stock traded at a record, share price of $193, gaining about +3.5% and touched a market value of about $2.01 trillion.
The online commerce giant joins $Microsoft(MSFT)$ , $Apple(AAPL)$ , Nvidia and $Alphabet(GOOG)$ as the world’s public companies worth $2 trillion or more.
As of Fri, 05 Jul 2024 US market close, AMZN stock price at $200, still above the $193 threshold required to remain as part of the $2 Trillion dollar club. (see above)
Catalyst.
Two possible catalysts that helped to boost Amazon shares on Wednesday:
Nasdaq Composite’s modest tech rally of about +0.3%.
More importantly, $Bank of America(BAC)$ analyst’s “bullish” note and upwards revision of Amazon’s price target to $220 from $210, have been noticed.
This implies a +10% further upside for a market cap of $2.3 trillion; based off Friday’s closing price. (see above)
Recent Financials.
Amazon stock has crossed the inflexion point as mentioned by many analysts.
YTD, the stock has gained +33.40%.
Based on past 18 months’ performance - Amazon has gained an impressive +136%.
Amazon current CEO Andy Jassy, has his most profitable first quarter ever.
Net income hit a record $10.4 billion, a marked improvement from (a) Q1 2022’s -$3.8 billion loss and (b) Q1 2023’s $3.2 billion profit.
In short, AMZN’s has a strong balance sheet.
$2 Trillion Sustainable ?
Am certain many harbour this question in their minds.
Will focus on AMZN’s 3 major factors to derive a holistic answer; although there are other auxillary factors that adds to revenue but not as significant as the followings. (see below)
Cloud Battle - #1.
On 3 Jun 2024, Amazon's profit-driving AWS business has a new Chief Executive. Matt Garman.
Mr Garman, was an intern at Amazon in 2005, knows the business inside out.
AWS, which rents cloud-based computing services to businesses, drives a significant portion of Amazon’s profits.
In 2023, it constituted 66% of Amazon’s $37 billion operating income and 16% of total revenue.
The move comes as AWS is competing to offer generative AI services to clients against Microsoft Azure and Google Cloud Platform.
Besides competing for AI-related business, each IT giant is working to reaccelerate sales growth after cut back on IT spending in the past 2 years.
AWS revenue grew +17% YoY for the quarter to $25 billion, while Microsoft Azure sales jumped +31% to $18.8 billion and Google cloud sales grew +28% to $9.6 billion.
For that, Alliance Bernstein rated AMZN as “Outperform” and expect revenue to continue accelerating sequentially, as core migrations & activity are picking up, while optimizations continue to fade.
Artificial Intelligence Push - #2.
On a call with analysts, CEO Jassy highlighted:
AWS had reached a $100 billion annual revenue run rate, that included a "multibillion-dollar" revenue run rate related to AI.
"The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS's AI capabilities is refueling AWS's growth rate".
Amazon has invested an additional $2.75 billion in AI startup Anthropic, completing a $4 billion deal with the AI startup from late last year.
Amazon is competing in the AI sphere against OpenAI’s ChatGPT.
Advertising Profits - #3.
Amazon exits 2023 with a $47 billion advertising business, that grew +24% in 2023.
In Q1 2024, advertising revenue reached $11.8 billion, a significant +24% YoY.
Advertising is another high-margin business line that will continue to benefit from the growth of AMZN stores and Prime Video businesses.
This trend is likely to continue based on following reasons:
Massive reach: With millions of shoppers, Amazon offers advertisers a huge audience.
Targeted ads: They can tailor ads to shoppers based on their browsing history and purchases, making them more effective.
Growing online sales: As more shopping moves online, Amazon's ad space becomes even more valuable.
2024 Projections.
Wall Street analysts are broadly positive on Amazon stock.
Of the 65 analysts following the company:
95% hold a “Buy” rating, according to FactSet.
Set a 12-month price target of $221.95 per share.
Regulators’ Headwinds.
It is not a bed of roses for AMZN as it stares down what is likely the biggest legal fight in its 30-year history.
Regulators are challenging Amazon's market power, with AMZN likely to face intense scrutiny in the coming years.
On 26 Sep 2023, the Federal Trade Commission (FTC) and 17 state attorneys general filed a major antitrust lawsuit against Amazon.
Accusation focused on AMZN using its market power to inflate prices and overcharge merchants.
Amazon rejected the allegations and argued the FTC is "wrong on facts and the law”. It is looking forward to presenting its case in the court, in October 2026.
Will this be the only antitrust lawsuit, probably not. Will there be more, probably yes.
Technical Analysis.
On Friday evening, AMZN stock price closed slightly below its 20-day & 50-day moving average.
It is above its 200-day moving average, overall a neutral position in need of a catalyst to jab the stock from its sleepy state.
Relative strength index (RSI) is “49” - indicating neither oversold nor underbought.
Stock Price Prediction in 2025 & Beyond.
The current consensus 1 year price target for Amazon stock is $218.23, which is 10.47% upside from today’s stock price of $197.54. Of all the analysts covering Amazon, the stock is a consensus buy, with a 1.32 “Buy” rating.
24/7 Wall Street 12 month forecast projects Amazon’s stock price to be $225. We see AWS continue its current 12% growth rate but see Amazon’s advertising business outperforming analyst expectations, particularly in the 4th quarter of 2024 with more streaming ad impressions being sold.
Assumptions & Hypothesis Thru 2030
AWS: Assuming AWS stems its market share loss and investments in AI propel counterbalance the threat from Microsoft and Google.
E-Commerce: Amazon continues to pour investments into ecommerce, forgoing added profits to maintain market share. Assumes growth in new logistics and efficiencies from robotics in warehouses leads to this unit finally delivering strong operating profits.
Advertising: Amazon’s advertising continued to grow, and the now $47 billion business unit and we see a high teens growth rate compounded annually.
Add all these numbers up and take out some amount for “new bets” the company will be investing in analysts see revenue in 2030 at $1.15 trillion and net income at $131 billion.
AMZN’s current 50X earnings has been reduced to 35x as AMZN matures (and continue to grow slower).
Ball Park.
Amazon will be worth $2.6 trillion in 2030.
Below are the estimates through the coming years:
Price Forecasts & Predictions for:
(1) 2025.
Due to limited real estate, will focus on the next 3 years forecasts. (see above)
Expect revenue growth > +11.0% and EPS to be $5.74.
Expect AMZN to still trade at a similar multiple, putting stock price estimate at $287, that is +45.29% higher than 05 Jul 2024 stock price.
(2) 2026.
Expect revenue growth to remain approx.+10% YoY and EPS to be $7.42.
Expect stock price to be $371.
2026 could mark the year Amazon starts trading at a more mature valuation closer to 35x earnings.
That would represent a +85.5% gain over today’s share price of $200.00.
(3) 2027.
Expect stock price increase to be less pronounced as more tempered growth is expected.
Expect EPS to be $8.80 per share, the stock price target will be $308.00.; a +17% gain from 2026.
Representing a +54% from Friday’s closing price.
Although the forecasts seemed surreal, we have to remind ourselves that just before AMZN stock split on 6 Jun 2022, its stock price was $2,785 per share.! This reminder should put things in perspective, no ?
Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks.
Do you think now is the “right” time to claim a stake in AMZN ?
Do you think there will be “buy-in” opportunities of AMZN share in US market this week ?
If you find this post interesting, give it wings! ️ Repost and share the insights ?
Do consider “Follow me” and get firsthand read of my daily new post. Thank you.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Pls help to "Re-post". Tks! Rating is important (to me).
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!