Amazon (NASDAQ: AMZN) stock has been on a rollercoaster this year, but it’s currently on an upward trajectory. This front-runner stock has been appreciating 16% over the last year and a whopping 43% since the start of 2024.
Amazon took a solid dip earlier this year because of Trump’s trade tensions, but it has recovered quite strongly.
Three key factors are propping this stock higher.
Its valuation keeps soaring. The company’s price-to-sales (P/S) ratio has jumped 30% from 2.8 in 2023 to 3.6 today. This number reflects increased investor confidence in Amazon’s future profitability.
Amazon’s revenue keeps expanding. Their revenue is up a solid 13% since 2023, hitting $650 billion. Amazon’s revenue numbers are telling a diversified growth story.
Amazon has hacked the art of controlling shares. A modest 2% rise in total shares outstanding means existing shareholders are seeing their slice of the pie remain largely intact.
While Amazon’s e-commerce, streaming, and digital advertising segments are all contributing, Amazon Web Services (AWS) is the undeniable star. It soared by 19% last year and continues to be the primary growth engine, significantly boosting Amazon’s overall profitability. Its operating margin has dramatically exploded by 72% since 2023, hitting 11.0%. This is making investors very happy.
Amazon is pouring tens of billions into AI, and it’s expected to be a major growth driver. AI applications are increasing the demand for cloud infrastructure, which directly benefits AWS.
Amazon anticipates “low double-digit sales growth” and even “more notable increases in bottom-line growth” over the next three years, which are largely thanks to these AI investments. This has skyrocketed their profits, and combined with continued AWS expansion and e-commerce dominance, be ready to see their valuation soar like a bird.
Currently trading around $217, Amazon’s P/S ratio of 3.6x is aligned with its five-year average.
However, the future looks bright for these guys. Strategic AI investments are expected to unlock significant expansion across all segments, leading to strong sales and even more impressive bottom-line growth. Investors are eyeing these AI initiatives as crucial catalysts for future value.
But Don’t Forget the Risks
While the outlook is bullish, don’t go headfirst into investing. Amazon has historically been a volatile stock, seeing significant drops during market downturns or trade anxieties.
The company’s massive capital expenditures ($161 billion since 2023) beg the question: What if these investments don’t deliver?
The competition in cloud computing from Microsoft Azure and Google Cloud is no joke, so you should keep an eye on it.
Amazon looks like it will continue to appreciate though, because it has its powerhouse AWS division, strategic AI investments, and strong core businesses.
However, be careful. Its volatility and the substantial capital are no joke. For long-term investors comfortable with some risk, Amazon’s diversified growth engines and strong innovation pipeline make a compelling case for investors to consider it.
