The journey of AMZN Stock has been nothing short of a rollercoaster, marked by pandemic-driven growth, a subsequent downturn, and a resilient recovery. As of December 12, 2023, AMZN Stock has surged by an impressive 72% since the market low, leaving investors wondering about the company’s future prospects. In this analysis, we delve into various facets of Amazon’s current landscape, including its foray into Artificial Intelligence (AI), the battle for dominance with Microsoft, the regulatory challenges it faces, and the resilience of its e-commerce business.
AMZN Stock Journey
1. Pandemic Surge and Subsequent Slump
The COVID-19 pandemic served as a catalyst for Amazon’s massive growth spurt, driven by increased demand for online shopping and cloud services. However, this success was short-lived as the AMZN Stock experienced a sharp 49% slump last year, reflecting the complex dynamics of pandemic-driven markets.
2. Resilient Recovery in 2023
In a turnaround that has caught the attention of investors, AMZN Stock has rebounded by 70% in 2023, showcasing the company’s ability to adapt and thrive amidst market uncertainties. The key question now is whether Amazon’s current valuation makes it an attractive investment.
AI Push for Cloud Business
1. Re: Invent Conference Highlights
Amazon’s recent focus on generative artificial intelligence is evident from its slew of AI-focused products unveiled during the re: Invent conference. These offerings include a new chatbot for businesses, an enhanced partnership with Nvidia, and the introduction of its own AI chip. This signals Amazon’s commitment to maintaining its lead in the cloud services market, particularly as generative AI gains prominence.
2. AWS vs. Microsoft: The Generative AI Battle
Amazon has refuted the story that it is trailing Microsoft in the AI race with its bold actions. The company’s will to take back the narrative on generative AI was demonstrated during the re: Invent conference. Despite Microsoft’s early advantage thanks to a $10 billion investment in OpenAI, Amazon unveiled ambitions to be the first to offer services using Nvidia’s GH200 Grace Hopper processors and unveiled Q, a chatbot. Though the generative AI business is still in its infancy, analysts are keeping a close eye on Amazon’s developments.
3. Strategic Investments and Partnerships
Amazon’s strategic investments, such as the up to $4 billion in Anthropic, and the launch of Amazon Bedrock in April, demonstrate its commitment to advancing AI capabilities. CEO Andy Jassy emphasized the company’s progress during the third-quarter earnings call, citing the growth in generative AI business with clients like Booking Holdings, GoDaddy, and United Airlines.
E-Commerce Resilience and Holiday Shopping
1. Record-Breaking Holiday Shopping Kickoff
Amazon’s e-commerce business has shown resilience, recording its “biggest ever” holiday shopping kickoff. While specific numbers were not disclosed, the company reported customers purchasing over 1 billion items during the extended Black Friday and Cyber Monday event. This positive momentum bodes well for investors anticipating a robust quarter from Amazon’s e-commerce segment.
2. Sales Performance and Outlook
E-commerce sales for the first nine months of 2023 reached $161 billion, a 4% increase year-over-year. Analysts project a 7% YoY increase to $69 billion in December quarter sales. However, caution was expressed by CFO Brian Olsavsky regarding customers’ cautious spending behavior, emphasizing a focus on price and deals, coupled with reduced spending on discretionary items.
3. Streaming and Black Friday Initiatives
Amazon’s foray into streaming, highlighted by the broadcast of a Friday NFL game on Prime Video, and limited-time “deal drops” during Black Friday, showcase the company’s multifaceted approach to driving e-commerce sales. Such initiatives contribute to the overall ecosystem, enhancing customer engagement.
Financial Performance and Investor Sentiment
1. Q3 Earnings Performance
Amazon reported Q3 adjusted earnings of 94 cents per share, exceeding expectations, and a revenue increase of 13% YoY to $143.1 billion. E-commerce sales were up 7% to $57.3 billion, while AWS posted a 12% YoY sales increase to $23.1 billion. Despite a revenue miss in AWS, Jassy’s commentary instilled confidence, highlighting an uptick in closed deals.
2. Regulatory Challenges
Amazon is not immune to regulatory challenges, with a significant antitrust lawsuit filed by the FTC and state attorneys general. The lawsuit alleges market power misuse, inflating prices, and overcharging merchants. Despite this legal battle, Wall Street sentiment remains strong, with 96% of analysts maintaining a buy rating.
3. AMZN Stock Technical Analysis
Amazon’s technical ratings, as of December 12, reveal positive trends. AMZN Stock is on the IBD Leaderboard, hovering below a buy point of 145.86. With a Relative Strength Rating of 93 and a Composite Rating of 92, AMZN Stock showcases outperformance compared to most stocks. The Accumulation/Distribution Rating of C suggests balanced institutional buying and selling.
AMZN Stock Future Outlook:
1. Shift Towards Service-Oriented Business
The future trajectory for Amazon suggests a transition into a more service-oriented business, with the likes of AWS contributing significantly to its sales footprint. Service sales, characterized by AWS contracts and Prime subscriptions, offer stability compared to the volatility of product sales. The maturation into a software-as-a-service stock may provide increased clarity on annual sales and earnings trends.
2. Profit Margin Expansion
While Amazon is gradually approaching the 6% profit-margin record, there’s potential for double-digit margins in the coming years. With operating income soaring and a focus on balancing growth and profits, the company aims for improved financials. The holiday quarter’s projected profits of up to $11 billion indicate a positive trend.
3. The “X” Factor
Amazon’s investments in artificial intelligence remain an “X” factor that could significantly impact its future growth. Despite being undervalued in comparison to software-focused peers like Microsoft, Amazon’s AI initiatives, if properly valued, may lead to a closing of the valuation gap. Investors can anticipate AMZN Stock outpacing the market as the company solidifies its position in the AI landscape.
AMZN Stock, amid AI wars, regulatory challenges, and e-commerce resilience, presents a multifaceted investment landscape. The company’s strategic focus on generative AI, coupled with a robust e-commerce performance, positions it for future growth. Regulatory hurdles and legal battles are part of the journey, but Wall Street’s confidence remains unshaken. As Amazon navigates the evolving tech landscape, investors can look forward to a dynamic future where the convergence of AI dominance, expanding profit margins, and resilient e-commerce contribute to sustained growth.