Amazon.com Inc (NASDAQ:AMZN) is a multinational technology company with a concentration in e-commerce, online advertising, and cloud computing. Amazon stock has become a reliable purchase.
The company showcases its dominance in e-commerce. Amazon’s growth catalysts include investment in AWS and expansion into AI. Despite the risks, Amazon stock is a buy. Amazon stock’s calculated equity per share could be $222.39, an 18.9% upside.
Amazon Stock Catalyst
Amazon’s growth catalyst includes its accelerated Amazon Web Service investment. AWS offers diverse capabilities such as computing power, storage options, and networking.
It is designed to handle large-scale data, supporting the specific needs of businesses across different industries. According to Synergy Research Group, AWS had 31% of the market share of the cloud service industry.
Recently, Amazon has invested billions into its AWS expansion in Indiana, as well as in France, Singapore, and many Southeast Asian countries.
I believe these global investments signify the company’s focus on enhancing and advancing its position in the competition. Moreover, AWS is undergoing leadership changes, as Matt Garman will take over the CEO position at AWS in June.
This might negatively affect Amazon stock in the short term. However, I believe these changes could suggest that the company is prepared for innovation in its products and leadership in the long term.
The advancement of AI technology has significantly increased the demand for cloud infrastructure services and data centers. This is because the AI training models require large amounts of data, and AWS provides solutions to those scale data centers.
In my opinion, the scalability of this product makes it very attractive for businesses that need to manage large amounts of data. Moreover, Amazon introduced Amazon Q, a generative AI model that assists in software development, internal data transfer, and enhanced business efficiency.
The launch of this AI represents a significant advancement for Amazon in the AI competition, accelerating its prospect growth.
Moreover, Amazon also invested $4 billion in Anthropic, an artificial intelligence startup in Europe. On Tuesday, Anthropic just launched its Claude AI chatbot.
Amazon’s investment indicates a strategic move to enhance its capability in the AI industry. This collaboration provides advantages for both companies. Amazon becomes the primary cloud provider for Anthropic, as it would use AWS’s computing chips, including Trainium and Inferentia.
In return, Anthropic promises to make its advanced AI models accessible to AWS users. I believe that all of Amazon’s investment in its AI competition will give the company a massive return in the future.
Valuation
Amazon’s revenue growth has been slowing down over the years. I think the reason behind this could be the impact of COVID-19, disrupting the supply chain and logistics of the company’s operations.
However, the company’s revenue for Q1 2024 was $143.31 billion, a 12.5% increase of 12.5% YoY. The sale for AWS is up to $25 billion in Q1 2024, a 17% increase YoY. The company is regaining dominance in e-commerce and strengthening its position in AI competition. Revenue growth is forecasted at 13% with operating income margins of 7%.
The cost of equity is 9.70%, calculated based on the beta of 1.15 and the risk-free rate of 4.44%. The after-tax cost of debt is 1.78%.
Amazon’s calculated WACC is 9.4%. Amazon’s implied value per share is $222.29, an 18.9% upside from the current price of $187.07. I believe Amazon should be a buy for now.
Risk
As the company’s primary e-commerce industry, Amazon depends heavily on global supply chain and logistics networks. Any disruption to logistics, like the global COVID-19 pandemic, could significantly impact the company’s growth.
Amazon’s advantage is its fast delivery times, including same-day or two-day shipping. This increases the pressure on logistics operations to meet customers’ expectations. Therefore, Amazon must maintain its operational excellence by investing in more logistics technology, inventory, and labor.
Another risk to Amazon is the advancement in the technology and AI industry. Although the industry has a lot of potential growth, there is no denying that it’s highly competitive.
As new emerging companies and established corporations continue to enter the industry, Amazon needs to constantly innovate its technology to meet customers’ changing demands and stay ahead of other competitors.
The Bottom Line on Amazon Stock
Amazon presents a key catalyst for future business growth, including investment in AWS and expansion into the artificial intelligence industry.
This catalyst could accelerate the company’s growth in the future. Despite the risk of supply chain disruption and intense competition, I believe that Amazon still displays many possibilities for prospect growth with its current investment.
Amazon stock warrants a buy, with a potential upside of 18.9%.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
