Amazon (NASDAQ: AMZN) has become a stock to watch, staging an impressive turnaround after the tech sector downturn that hit a host of growth stocks in 2022. The company’s share price fell 50% during that challenging year, but has more than recovered, gaining 123% since January 1, 2023. It’s now up about 17% from the start of 2022 to date.
The retail giant has benefited from a series of cost-cutting measures and declining inflation. Amazon’s growing cash reserves have allowed it to invest heavily in growing industries such as artificial intelligence (AI) and digital advertising.
The company is on a promising growth path that makes its shares too good to pass up right now. Meanwhile, its price-to-sales ratio of around 3 suggests it remains a bargain compared to some competitors.
Here are three reasons to buy Amazon stock like there’s no tomorrow.
1. Strong retail growth
Rises in the cost of living forced millions of consumers to cut back on their discretionary spending in 2022, and interest rate hikes implemented by the Federal Reserve to combat that inflation caused stock market declines. That year, Amazon’s e-commerce profits plummeted. However, retail growth over the past year has shown that Amazon has managed to weather the economic headwinds and reflects the long-term reliability of its business.
Despite expansion into other sectors, Amazon’s retail-focused segments still account for more than 80% of net sales. As a result, recent growth in the North American and international divisions has significantly boosted overall profits.
In the first quarter, Amazon’s revenue rose 13% year over year to $143 billion, beating Wall Street’s consensus estimate by $750 million. The company’s North American and International segments posted revenue growth of 12% and 10%, respectively, in the quarter.
The most impressive result, however, came in the area of operating revenues. In Q1, Amazon’s North American and International segments brought in a combined $6 billion in operating revenues, a significant improvement from their combined losses of $349 million in the same period last year.
2. An emerging digital advertising business
This year, Amazon ventured into the streaming ad market when it introduced ads on its Prime Video platform. And just six months later, the move is driving revenue.
In the first quarter, revenue from the advertising services segment increased 25% year-on-year. This emerging business could boost the company’s revenue for years to come.
A forecast from market research firm Statista predicts that the digital advertising market will reach $740 billion this year, and is still growing. Meanwhile, the huge audience on Prime Video allows Amazon to price ads on the platform competitively. Amazon charges between $30 and $35 per 1,000 impressions. For reference, Netflix used to charge up to $45 per 1,000 impressions at its ad-supported tier, but recently lowered its prices to match Amazon’s. Smaller streaming platforms may struggle to offer advertisers similar rates.
In the first quarter, Prime Video had a leading 22% market share in video streaming, ahead of Netflix (21%) and the third-largest player Discovery of Warner Bros.‘s Max (14%). As a result, the company could have a lucrative future in advertising, further diversifying its business model.
3. Amazon has the money to thrive in AI
Amazon’s operating profit and free cash flow have soared over the past year, driven by significant gains in both its e-commerce segments and its cloud business, Amazon Web Services (AWS). In the first quarter, AWS’s operating profit nearly doubled year over year to $9 billion. That represented more than 60% of the company’s total operating revenue, even though AWS brings in the smallest share of revenue.
With the renewed gains, Amazon has gone all-in on AI. Cloud platforms are a critical growth area in AI, as businesses increasingly turn to cloud services in hopes of boosting productivity with AI technology. And AWS has a competitive advantage with a leading 31% market share of cloud infrastructure.
Amazon has added a suite of AI tools to AWS this year, invested billions in building data centers around the world and ventured into chip design to create its own AI processors as it seeks to expand its position in that fast-growing market.
Amazon shares are up 95% in the past five years. Given its growth catalysts in multiple markets, the company could do even better over the next five years, especially in light of the current low price-to-sales ratio. As such, Amazon is a stock you can buy like there’s no tomorrow.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Netflix and Warner Bros. Discovery on. The Motley Fool has a disclosure policy.
3 Reasons to Buy Amazon Stock Like There’s No Tomorrow was originally published by The Motley Fool
