Amazon (NASDAQ:AMZN) has surprised even the company's doubters, with its stock more than doubling over the past year and nearly quadrupling from just three years ago. What's more, the stock is trading just shy of the all-time highs the company achieved the day it joined the $1 trillion market-cap club earlier this month.
With those eye-popping results, it may seem counter-intuitive to buy the stock after such a run-up, but two analysts are suggesting just that, and they're going even further -- their price targets are the highest among their Wall Street brethren, suggesting that Amazon's stock will gain another 25% in the coming year.
The company is getting a lot of love from these analysts, so let's see what's got them so fired up.
Earlier this month, Morgan Stanley analyst Brian Nowak increased his price target on Amazon to $2,500 per share -- 24% above the stock's current price. At the time, this was the highest anticipated price among the analysts that cover the company.
Nowak said he is particularly enthusiastic about several of the company's high-margin businesses, specifically noting the cloud business Amazon Web Services (AWS), the Prime loyalty program, and the company's recent focus on advertising. He believes that the e-commerce provider's profit will soar to $45 billion by 2020, up from just $25 billion in 2018.
Further out, Nowak is projecting that through 2022, subscription revenue from Prime will grow 25% annually, AWS sales will increase by 33% per year, and advertising sales will grow at 37% annually. He also noted that the company has outperformed its own operating profit forecasts by an average of 60% during the past three quarters.
"We have increasing confidence that Amazon's rapidly growing, increasingly large, high-margin revenue streams will drive higher profitability and continued upward estimate revisions," Nowak wrote in a note to clients.
Stifel analyst Scott Devitt has gone even further, boosting his price target to $2,525, more than 25% above the stock's current level. He argues that investors don't fully appreciate the growing number of initiatives that will drive Amazon's future growth.
"Amazon is a leader in two large and rapidly growing markets, e-commerce and cloud services," Devitt wrote in a note to clients. "The company is investing in a number of initiatives, including Prime, AWS, India, logistics, video content, and Alexa, which will limit the opportunity for near-term margin expansion."
Devitt goes to say that while these investments will constrain margin expansion in the near term, they will allow Amazon to continue gaining market share. "This better positions the company for continued market share gains and opportunity for greater margin expansion once the company emerges from the current investment cycle," he added.
He expects that Amazon will generate revenue of $290 billion in 2019 and $351 billion in 2020 -- up from just $178 billion in 2017.
Where Amazon's headed
There's no denying that Amazon has seen increasing momentum over the past several years as the company's used its high-margin cloud segment to help fund the expansion of its e-commerce business. Amazon has also succeeded in expanding the margins produced by its online sales, and its recent focus on advertising points to another high-margin business that will fuel future growth.
While these analysts are among the most enthusiastic about Amazon's prospects, they're by no means alone. Ashim Meha of Baron Capital believes Amazon could grow to a $2 trillion market cap over the next three to five years, while Jeffries & Company analyst Brent Thill has suggested that AWS -- the company's biggest moneymaker -- could triple during the next five years to $60 billion.
The common thread among all these forecasts boils down to one thing -- Amazon still has a long runway for growth ahead. That sounds like a really good reason to buy to me.