Amazon.com‘s (NASDAQ:AMZN) profits continue to soar. Moreover, the tech giant’s two main businesses — its North American e-commerce unit and its AWS cloud infrastructure division — are both growing very rapidly. They also both have powerful, positive catalysts, while their profitability is increasing very quickly. Given these points, I remain very bullish on Amazon stock and continue to urge all investors to buy its shares.
Also importantly, the stock’s valuation is quite attractive in light of the firm’s current, strong growth trends, the huge increases in its bottom line and its multiple, powerful and positive catalysts.
Profitability is soaring
Last quarter, the conglomerate’s net income jumped to $10.4 billion compared with $3.2 billion in the first quarter of 2023. The increase would have been much greater if the company had not suffered losses from its investment in electric vehicle (EV) maker Rivian (NASDAQ:RIVN). That’s because, last quarter, the pre-tax loss from the investment came in at $2 billion versus a pre-tax loss of just $500 million in Q1 2023.
What’s more, Amazon’s operating cash flow jumped 82% in the year that ended in March 2024 to $99 billion, versus $54.3 billion during the same period a year earlier. And in the 12-month period that ended in December 2023, the firm’s operating cash flow was $84.9 billion. So it’s clear that Amazon’s profits are continuously, rapidly improving under CEO Andy Jassy at this point.
North American e-commerce is thriving
Amazon’s North American business is growing rapidly considering that it’s very mature and part of a sector that’s not expanding very quickly. In Q1, the sales of the tech firm’s North American e-commerce unit jumped 12% versus the same period a year earlier to $86.3 billion.
Meanwhile, it’s easy to forget now but the e-commerce business suffered losses or was barely profitable for many years under Amazon founder and former CEO Jeff Bezos. Now the unit has become quite lucrative for Amazon as it generated operating income of $45 billion last quarter and reported OI of $14.9 billion during the holiday quarter.
The main two factors contributing to this positive change are the strength of many U.S. consumers and Amazon’s cost-cutting under Jassy. But a third factor could be starting to play a role.
Specifically, the firm’s healthcare business — in-line with my previous predictions — appears to be taking off. On Amazon’s Q1 earnings call, Jassy said, “Our health services business is growing robustly as customers are loving our pharmacy customer experience, and we’ve launched same-day delivery of prescription medications to customers in eight cities, including Los Angeles and New York City, ” I continue to believe that the drug business will become needle-moving and quite lucrative for the conglomerate.
AWS is knocking the ball out of the park
Spurred by the artificial intelligence (AI) boom and the continued cloud migrations, AWS is growing very rapidly and generating huge profits.
Last quarter, the unit’s sales soared 17% versus the same period a year earlier to $25 billion. And its operating income nearly doubled to $9.4 billion versus $5.1 billion a year ago. In the fourth quarter, the business’s operating income was $7.2 billion, so profits are expanding at a continuous, rapid pace. Also importantly, the unit’s profit margins rose a robust eight percentage points last quarter compared with Q4.
The firm reported that the unit is benefiting from “longer deals and larger commitments, many with generative AI components.” Indeed, Jassy reported that AWS customers have become less worried about controlling costs and are now looking to start new initiatives. He added that AWS is benefitting from “considerable momentum on the AI front.” In fact, the unit is on pace to generate at least $2 billion of annual revenue from AI-oriented products, he reported.
Valuation and the Bottom Line on AMZN Stock
AMZN stock is now changing hands at a forward price-earnings ratio of 34 times, based on analysts’ average 2025 earnings per share estimate. That’s actually a historically low valuation for the company. It’s also an attractive valuation in light of the strong performance of Amazon’s main businesses and their ability to benefit from powerful, ongoing trends going forward.
On the date of publication, Larry Ramer held long positions in AMZN and RIVN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
