Is Amazon Stock A Buy? Shares Near New High Amid AI Push For AWS - Investor's Business Daily

Amazon.com (AMZN) has started strong out of the gate in 2024, with its fourth-quarter earnings report in February sending its stock soaring. But the tech behemoth will need to keep improving the profitability of its massive online retail business for Amazon stock to stay hot, while also fending off challengers in the cloud-computing market.

With a market cap above $1.85 trillion, Amazon is among the world’s most valuable companies. The Seattle-based company is approaching a record high share value it last reached in 2021. But it is facing stepped-up competition for digital sales from Walmart (WMT) and Target (TGT). Meanwhile, it is battling Microsoft (MSFT) to be the leading cloud-platform for generative artificial intelligence.

Amazon is the market leader in e-commerce, as well as cloud-computing through its Amazon Web Services division, or AWS. The company has turned to AI and a booming advertising business to boost its growth.

However, Amazon is extended well above its last proper buy point. And 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.

Amazon Boosts Investment In AI Startup Anthropic

Market analysts expect generative AI will drive companies to spend more on cloud services. That means the big three providers of Amazon, Microsoft and Alphabet‘s (GOOGL) Google are jockeying for position to host AI computing.

Amazon made its latest move to be an AI leader last week. The tech giant said on March 27 that it has invested an additional $2.75 billion in the AI startup Anthropic, completing a $4 billion deal with the artificial intelligence startup from late last year.

Anthropic is the developer of the chatbot Claude. Claude competes with OpenAI’s ChatGPT, which launched the generative AI craze late in 2022. The San Francisco-based Anthropic was founded by former OpenAI researchers.

After Amazon announced the deal, BofA Securities analyst Justin Post wrote that it could help narrow the “perception gap” that Amazon has with Microsoft. Microsoft, whose Azure service is the No. 2 cloud-computing provider behind AWS, was quicker to embrace generative AI. Just weeks after ChatGPT launched as a viral online hit, Microsoft reportedly agreed to invest $10 billion as part of a strategic partnership with OpenAI.

But AWS’ deal with Anthropic gives the company its own AI partner, potentially countering Microsoft. Further, the tech giant launched Amazon Bedrock roughly one year ago. The service allows users of Amazon’s AWS to build generative AI applications using a range of large language models, including the latest from Anthropic.

Amazon also used its November 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.

During the company’s Feb. 1 earnings call, Amazon Chief Executive Andy Jassy he said generative AI is a “pervasive” focus for Amazon that will drive “tens of billions of dollars” in revenue in the next several years.

Microsoft and Google, however, both recorded faster overall growth for their cloud businesses in the fourth quarter. So the battle for Amazon to defend its title of cloud king bears watching for investors.

Amazon Stock Chases 2021 Record High

Meanwhile, Amazon stock’s next milestone could be returning to a record high it reached in 2021. That would mark a full recovery for the company after a rough 2022.

Amazon stock opened trading Monday April 1 at 180.79, roughly 4% behind a 188.65 high from July 2021.

Shares of Amazon are up about 15% from the start of the year. Amazon stock jumped on Feb. 1, after the company reported better-than-expected earnings and a 14% year-over-year revenue increase for the fourth quarter.

Wall Street analysts expect Amazon to reach a new high. Of the 61 Amazon stock analysts following the company, 95% hold a buy rating, according to FactSet. Further, FactSet data shows those analysts have, on average, set a 12-month price target of 208.61 for Amazon stock, according to FactSet. That implies roughly 15% upside from Amazon’s opening price April 1.

Amazon Boosts Pharmacy Efforts

Last month, Amazon announced it would expand its pharmacy efforts. The company said March 26 that it will offer same-day delivery of prescription medications in New York City and the greater Los Angeles area. The e-commerce giant hopes to expand to more than a dozen cities by the end of the year.

Amazon will use small-format facilities stocked with common prescriptions to power its same-day delivery, according to the announcement. Amazon previously offered same-day prescription delivery in Austin, Indianapolis, Miami, Phoenix and Seattle.

Earlier in March, Eli Lilly (LLY) said it would partner with Amazon to distribute its massively popular weight-loss drug Zepbound, through a service called LillyDirect.

Amazon launched its pharmacy unit in 2020, two years after it acquired the online pharmacy business PillPack. The company does not break out separate results for its health care efforts in its financial reports. Chief Executive Andy Jassy said on the company’s February analyst call that he “really like(s) the momentum that we’re seeing in our Amazon Pharmacy business.”

But Amazon itself acknowledges that most pharmacy orders are still picked up in-person. The firm’s press release announced that pharmacy expansion included a link to a McKinsey & Co. research report, which found less than 10% of U.S. pharmacy orders are delivered, as of 2021.

Pharmacy is part of a broader health care push that Jassy has prioritized since he took over as chief executive in 2021. In 2022, Amazon acquired One Medical, a primary care services operator, for $3.9 billion.

Target Takes Aim At Prime, Walmart Pushes Faster Delivery

Amazon holds the largest share of U.S. online retail sales by a significant margin. But – alongside China-based challengers like TikTok and Temu – brick-and-mortar giants retail are stepping up their challenges.

Target, for instance, recently announced a paid membership program called Target Circle 360. The $99 annual subscription includes free same-day shipping on orders $35 or more through Target’s Shipt service, as well as free two-day shipping on other orders. The membership product launches April 7 and will have a promotional price tag of $49 annually through May 18.

The service will compete with Amazon’s $139 annual Prime subscription offering and the $98 per year Walmart+. Walmart, meanwhile, announced recently that it will expand its on-demand delivery service to start at 6 a.m., with express delivery in an hour or less.

Still, Amazon’s hold on the U.S. e-commerce market is strong.

Amazon, Walmart, Target and eBay (EBAY) comprise what analysts at Bank of America called the Big 4 of e-commerce. In a recent client note, BofA analysts said they expect Amazon to command 38.7% of U.S. e-commerce sales, up from 37.7% in 2024. Walmart’s share of the market is seen rising to 8.8% from 8.3%. EBay’s share is expected to decline slightly to 2.9% while Target’s remain flat at 1.7%.

Further, BofA analysts estimated that gross merchandise value, or total value of online sales, for the Big 4 grew 15% year over year in the fourth quarter of 2023. Walmart’s growth was strongest at 17%, trailed by Amazon at 14%. Target and eBay both were relatively flat from a year earlier, the report said.

How Amazon Performed In Fourth Quarter

Wall Street analysts raised their target prices and estimates for Amazon following its fourth quarter earnings report.

In results published Feb. 1, Amazon said it earned $1 per share on sales of $170 billion for the December-ended quarter. Analysts projected the company would post earnings per share of 80 cents on $165.9 billion in sales for the December quarter, according to FactSet.

Sales for the quarter increased 14% year over year, while earnings surged from 3 cents a share in the year-ago quarter.

Meanwhile, sales for Amazon Web Services increased 13% year over year to $24.2 billion, in line with expectations for the closely watched cloud business.

Amazon stock jumped 8% in next-day trading. William Blair analyst Dylan Carden wrote in a client note that day that Amazon provided “a decidedly good print, with better outlook and room for continued upside.”

Amazon Stock: Wall Street Projections For 2024

After posting a loss in 2022, Amazon’s earnings bounced back in a big way last year. Now, Wall Street analysts are expecting further earnings growth for 2024. Consensus projections see Amazon’s posting adjusted earnings of $4.17 per share for the December 2024 fiscal year, according to FactSet. That would mark a 44% increase from 2023. Amazon’s earnings climbed to $2.90 per share for fiscal year 2023, compared to a loss of 27 cents per share in 2022.

Further, Amazon’s operating income is expected to climb 50% to $55 billion in 2024. That’s a slowdown from the 200% in operating income Amazon posted in 2023 but the growth rate last year benefited from comparisons to 2022, when operating income sank 51% to $12.25 billion.

Amazon’s revenue, meanwhile, is expected to grow 11.7% to $642.27 billion in 2024. Sales grew 11.8% in 2023 and 9.4% in 2022.

Retail Business Boosting Profits

The profitability of Amazon’s retail business stood out to analysts following Amazon’s fourth-quarter earnings report. Operating income from Amazon’s North America retail division generated $6.5 billion in operating income during the December quarter, compared to a $240 million loss a year earlier.

Sales for the division climbed 13% to $105.5 billion.

Jassy said a restructuring of its U.S. fulfillment network has made delivering products more efficient.

“In addition to the strong top line growth, which helped to drive improved leverage throughout our businesses, we continue to make progress on reducing our cost to serve,” Jassy said on the company’s earnings call. “The fourth quarter is our busiest time of year, supported by an increasingly large and integrated operations network.”

A booming business selling advertisements within Amazon’s website, apps and streaming channels is also boosting margins. Advertising sales grew 27% year over year to $14.7 billion. Ads are the company’s fastest-growing segment.

Evercore ISI analyst Mark Mahaney noted that this quarter marked Amazon’s highest-ever operating income.

“Three fundamental catalysts are playing out,” Mahaney wrote to clients following the report. “AWS growth is accelerating, the North American Retail segment is ramping to record-high operating margins, and the company as a whole is ramping to record-high free cash flow margins.”

Amazon Stock: AWS Growth Accelerates

Amazon’s earnings also eased some concerns about its profit-driving cloud-computing business.

The 13% year-over-year sales growth for Amazon Web Services marked an improvement from a 12% growth rate for the division in the third quarter. Analysts have been looking for signs that AWS could reaccelerate sales after a slowdown for growth last year.

AWS is the top cloud provider by market share, providing cloud computing power and storage to millions of business. It also provided two-thirds of Amazon’s $37 billion in operating income for 2023.

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.

Heading into Amazon’s fourth-quarter report, Piper Sandler analyst Thomas Champion wrote in a client note that 70% of the questions he was hearing from investors were about AWS.

But, as Champion wrote to clients following the report, AWS’ growth for the fourth quarter “hit the bullseye.”

Will Regulators Take A Bite Out Of Amazon Stock?

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.”

Technical Analysis Of Amazon Stock

Amazon stock’s technical ratings are strong following back-to-back earnings reports that topped expectations.

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 94% 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.

But with shares hovering for the past month between 170 and 180, Amazon stock is extended well beyond its most recent 145.86 buy point from a consolidation pattern, according to IBD MarketSurge.

Here is a guide to understanding IBD’s rating system.

Amazon Market Cap

You can check for Amazon’s current stock price here. Amazon’s market cap is $1.87 trillion, as of market open April 1. Here is how the stock has grown over time: