Will Amazon Remain a Titan in The Stock Market?

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Written By Marcus Reynolds

In 2023, Amazon (AMZN) experienced its most impressive stock market performance since 2015, surging by an astonishing 81%.

This remarkable growth has brought the company into the spotlight, raising questions about its future trajectory in the competitive world of online retail and cloud computing.

A Titan in E-Commerce and Cloud Computing

As one of the world’s most valuable companies, with a market capitalization nearing $1.6 trillion, Amazon stands as a dominant force in e-commerce and cloud computing through its Amazon Web Services (AWS) division.

However, the tech giant isn’t resting on its laurels. It’s venturing into new territories, including generative artificial intelligence and a rapidly expanding advertising business. Despite these advancements, Amazon faces a significant antitrust battle with the U.S. government.

Credit: DepositPhotos

The Outlook for Amazon Stock

Investors and analysts are keenly watching Amazon stock, pondering its viability as a long-term investment. “Can Amazon keep adding to its big gains?” is a question on many minds.

Wall Street analysts seem optimistic, with an average 12-month price target of 183 for Amazon stock, suggesting a 19% upside from its opening price on January 16, according to FactSet.

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Analyst Confidence and Emerging Challenges

BofA Securities has expressed confidence in Amazon’s stock, raising its 12-month price target. “With retail margins still having room for upside and AWS poised to accelerate, we think the stock is attractively positioned into 2024,” remarked BofA analyst Justin Post.

This optimism is rooted in the belief that Amazon’s retail margins have potential for further growth and that AWS is on the brink of an acceleration phase.

AI and Cloud Computing: The Next Frontier

However, challenges loom on the horizon. One major concern for Amazon is its position in the rapidly evolving AI sector, particularly in cloud computing, where it faces stiff competition from Microsoft (MSFT).

The BofA report highlighted this issue, stating that Amazon could be “missing” the AI cycle for the cloud market and losing ground to Microsoft. Nonetheless, analysts anticipate a rebound in AWS revenue, propelled by an increase in AI demand across providers.

Amazon’s Proactive Steps in AI

Amazon’s response to these challenges has been proactive. The company recently unveiled a suite of AI-focused products for AWS at its annual re:Invent conference.

These offerings include a new chatbot for businesses, a deepened partnership with AI chip market leader Nvidia (NVDA), and an updated AI chip of its own. These developments underscore Amazon’s commitment to maintaining its leading position in the cloud services market.

AWS: A Critical Profit Driver

AWS, with the largest market share among cloud providers, is a critical profit driver for Amazon. However, there has been some concern over slowing revenue growth as companies scale back on computing expenses.

The focus now shifts to the generative AI race, where Microsoft has seemingly taken an early lead. Yet, Amazon is not far behind, as evidenced by its re:Invent conference, where it highlighted its advancements in AI.

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Amazon’s AI Advancements and Challenges Ahead

Amazon has made notable strides in AI, such as investing in Anthropic, a rival to ChatGPT-creator OpenAI, and launching Amazon Bedrock, which enables AWS users to develop generative AI applications.

Amazon CEO Andy Jassy emphasized the company’s AI progress during the third-quarter earnings call, stating, “In our best estimation, the amount of growth we’re seeing and the absolute amount of generative AI business we’re seeing compares very favorably with anything else I’ve seen externally.”

Monitoring Amazon’s Progress in Generative AI

The battle for generative AI market dominance is still in its early stages, and analysts are closely monitoring Amazon’s progress.

Amazon’s Holiday Sales and E-Commerce Strength

Another area of interest for investors is Amazon’s holiday sales performance. The company reported its “biggest ever” start to the holiday shopping season following Thanksgiving, though exact figures were not disclosed.

Credit: DepositPhotos

Adobe Analytics noted a 5% increase in online spending during the holiday season compared to 2022. Amazon’s e-commerce sales in the fourth quarter of 2022 declined slightly, but the first nine months of 2023 saw a 4% increase in revenue from its online stores.

Financial Performance and Future Expectations

For the quarter ending in September, Amazon reported a 13% year-over-year increase in revenue to $143.1 billion, with e-commerce sales rising 7%. Advertising sales also saw a significant boost, growing 26% from the previous year.

The company’s efforts to streamline its e-commerce fulfillment network are starting to pay off, as evidenced by the increase in operating income to $11.2 billion for the quarter, compared to $2.5 billion in the same period last year.

Amazon Web Services: A Continued Focus

However, Amazon Web Services posted a modest 12% year-over-year sales increase to $23.1 billion. During an earnings call, Jassy acknowledged the focus on cost optimizations and the slower pace of deal completions in the uncertain economic climate of 2023.

Despite this, the company is encouraged by the recent uptick in new deals.

Facing Regulatory Challenges

In the legal arena, Amazon is facing significant regulatory challenges. On September 26, the Federal Trade Commission and 17 state attorneys general filed an antitrust lawsuit against the company, alleging misuse of market power to inflate prices and overcharge merchants.

Amazon has vehemently denied these allegations, stating that the FTC is “wrong on the facts and the law.”

The Outlook and Sentiment on Wall Street

Despite these challenges, Wall Street’s sentiment toward Amazon remains largely positive. According to FactSet, 96% of the 56 Amazon stock analysts hold a buy rating.

In conclusion, as Amazon navigates through these various challenges and opportunities, the company remains a pivotal player in the tech industry.

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