Amazon (NASDAQ:AMZN) is holding tight near all-time highs, yet if you’re concerned that this is the prelude to an Amazon stock reversal, think again. There’s no need to assume that shares are topping out.
Despite various uncertainties, the current bull market appears likely to continue. Barring an unforeseen market correction or black swan event, the broad market’s steady climb will keep AMZN climbing higher.
That’s not all. Company-specific catalysts for this e-commerce and cloud computing giant could help to drive an outsized leap for shares over the next twelve months.
I’m talking a move to $200, then $225, then perhaps even up to $250 per share by 2025.
Interestingly enough, such a move higher will most likely be driven not by AI or some other growth trend, but by another positive factor that has been in motion with AMZN for quite some time.
Amazon Stock: Headwinds and Hiccups Will Not Sink This Ship
Yes, recent concerns about AMZN peaking in price go beyond just technicals. On the surface, recent headlines suggest headwinds, or at the very least hiccups, are emerging, which could affect operating results going forward.
If these factors affect fiscal performance in the coming quarters, in theory it would likely have a negative impact on the future performance of Amazon stock.
So, what are some emerging headwinds and hiccups? Here’s a good example from the e-commerce segment: possible further unionization of Amazon’s warehouse workers.
So far, only one Amazon facility, in Staten Island, New York, has unionized. However, the formerly-independent union representing warehouse workers at the facility has just affiliated with the International Brotherhood of Teamsters.
This could mark the start of ramped-up efforts by the Teamsters to organize workers at other facilities.
That’s not all. With Amazon Web Services, Amazon’s cloud computing unit, concerns are emerging about reduced margins for this cash cow segment for the company.
Recently, Baird analyst Colin Sebastian argued that higher AI-related expenses could lead to margin contraction later this year. That said, while there are some challenges, don’t expect them to sink this ship. Chances are they will be outweighed by the following positives.
Still ‘Cashing the Check’
Previously, I have argued that a major catalyst for Amazon stock has been the company’s efforts to take its foot off the growth gas pedal. This has resulted in outsized improvements in profitability.
In the past, Amazon prioritized the scaling up of this segment over running it at maximized profitability.
Still, of course, a dominant player in retailing, it’s not just me that expects the company’s to “cash the check,” raising margins at e-commerce in the process.
As analysts at BofA recently argued, retail margins at Amazon are expanding. While downbeat on AWS margins, the aforementioned Baird analyst is bullish about margin expansion with Amazon’s retail business.
Per Sebastian, Amazon’s North American retail business could see its margin rise to 10% by 2027, up from 4% in 2023. The analyst also anticipates Amazon’s international e-commerce business becoming consistently profitable.
Add in growth from one of the company’s highest-margin segments, advertising, and it’s easy to see results meeting, if not beating, expectations in the quarters ahead.
Sell-side forecasts call for Amazon’s earnings to rise by 18.3% this year, with the higher end of forecasts calling for earnings per share (EPS) nearing $7. 2026 forecasts call for even higher growth.
Bottom Line: AMZN Remains in the Buy Zone
Amazon shares could keep on surging, without having to lean too heavily on multiple expansion. All that’s needed is for results to beat expectations, or for analysts to upwardly revise their 2025 and 2026 forecasts.
In other words, simply by moving in tandem with increased earnings, AMZN could make the $200 to $225 to $250 leap. This would represent a total of around 32.2%, if you were to enter a position today.
Over an even longer time frame, Amazon could stay an outperformer. Besides the “cash the check” margin expansion catalyst, the potential payoff from its efforts to capitalize on the generative artificial intelligence growth boom also stands to help move the needle.
Put it all together, and there is a clear verdict. At just under $190 per share today, Amazon stock remains in the buy zone.
On the date of publication, Thomas Niel did not hold (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.
