Amazon (AMZN) stock is currently in a correction phase and is poised to offer a buying opportunity before a long-term rally. The tech giant is on track to regain a $2 trillion market capitalization. I’m bullish on the stock due to the growth in e-commerce, cloud computing, and online advertising, along with steady growth in revenues and net income. These factors should drive the stock higher, suggesting a promising long-term investment opportunity.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Amazon Accelerates Cloud Computing Revenue
One of the reasons I’m bullish about this stock is AWS (Amazon Web Services), its cloud computing platform. AWS is widely used by corporations and small businesses for storing critical data and files. It also supports the development and operation of various applications. As a leader with about one-third of the total cloud market share, AWS is well-positioned to capitalize on the growing demand for artificial intelligence (AI) products and services.
In the second quarter of 2024, AWS revenue grew by 19% year-over-year to $26.3 billion. This highlights growth over the 17% year-over-year jump in AWS revenue in Q1 2024 and 13% in Q4 2023. This indicates that AWS’s revenue growth rates are accelerating.
AMZN’s Advertising Revenue Continues to Climb
Another reason for my bullishness on AMZN stock is its Advertising Services. In addition to strong performance in its cloud platform, Amazon’s rising ad revenue supports my positive view. Advertising offers attractive profit margins because it is less costly to run ads compared to the expense of delivering products to customers.
The company reported $12.8 billion in ad revenue during the second quarter, marking a 20% year-over-year growth. Interestingly, this growth rate is higher than Alphabet’s (GOOGL) ad network, where advertising sales increased by 11% year-over-year to $64.6 billion in Q2.
Moving ahead, any further unfavorable development in the Google antitrust case could help Amazon gain more market share in the ad industry. Last month, Google lost a landmark, years-long antitrust battle with the Justice Department that alleged that Google misused its dominance in search and text advertising.
Overall, advertising presents a strong long-term opportunity for Amazon. The company leverages ads across its online marketplace, Twitch, streaming services, and other platforms. Moreover, growing ad revenue can help compensate for the slower growth in online and physical store sales, which have been in the single digits for several quarters.
Amazon Dominates as E-Commerce Leader
My positive outlook on Amazon is well supported by its robust e-commerce business, which is its primary revenue driver. Along with purchasing products and services on its online marketplace, users interact with ads and engage with Amazon’s other offerings, such as Prime Video, while shopping.
The company’s status as the top e-commerce choice has made it a regular destination for many online shoppers. This gives Amazon an edge over competitors whenever it launches new products or services. Moreover, its online marketplace continues to expand both domestically and internationally.
In Q2, Amazon reported 9% year-over-year sales growth in the North America segment, totaling $90 billion. Meanwhile, its revenue in the International Markets segment reached $31.7 billion, up by 7% year-over-year. Furthermore, the company’s 10th Prime Day was the largest ever, indicating continued strong demand. It also achieved its fastest delivery speeds for Prime members in the first half of 2024.
Amazon’s Rising Profit Margins Signal Growth
Amazon’s rising profit margins and consistent long-term returns further support my bullish view of the stock. The company nearly doubled its net income year-over-year, achieving a 9% net profit margin in Q2 2024. Increasing adoption of AWS and growing advertising revenue has the potential to further enhance profit margins.
Speaking of its valuation, AMZN stock holds a P/E ratio of 43, higher than the sector average of 14.08. However, it is well below its historical five-year average of 78.62.
Is AMZN Stock a Buy, According to Analysts?
Turning to Wall Street, the overall sentiment toward Amazon stock is bullish. Amazon stock is currently rated as a Strong Buy based on 42 Buy, one Hold rating, and zero Sell recommendations. The Amazon average price target is $222.88, which projects a 25% upside from current levels.
The highest price target of $265 per share implies the stock could see another 48% increase. Even the lowest price target of $186 indicates a modest upside from current levels.
See more AMZN analyst ratings.
The Bottom Line on Amazon Stock
Amazon stock is currently undergoing a correction but is expected to soon regain its $2 trillion market capitalization. The company consistently reports strong revenue growth across various segments and achieves higher profit margins.
To summarize, Amazon stands out as the leading online marketplace and cloud computing giant. Additionally, it is emerging as a top player in online advertising and is positioned to capture more market share in the coming years. I am bullish on Amazon stock, expecting it to continue rising due to the company’s dominance across multiple industries.
