The Nasdaq-100 index is made up of 101 companies, mostly from the technology sector, and its watched by some investors as a gauge of how the high-growth segment of the stock market is performing. A look at 2022 shows the performance is abysmal, with the index shedding 30% of its value since the start of the year.
But after setting a fresh 52-week low just last week, the Nasdaq-100 is clearing attempting a recovery this week as investors digested some important U.S. economic data that came in better than expected. There are hints that inflation might be starting to ease, which could be a green light for tech stocks to stage a comeback. A big beneficiary of any sentiment shift in the markets would be Amazon (AMZN +1.31%). Its world-class e-commerce business performed sluggishly this year as goods shot up in price and consumers tightened spending, so it has plenty to gain from an economic resurgence.
Let's look at why investors should put Amazon stock near the top of their wish list if the see an economic recovery ramping up.
NASDAQ: AMZN
Key Data Points
E-commerce, cloud services, advertising, and so much more
While Amazon's e-commerce business has slowed during 2022, the company's investments in other segments have picked up the slack. It's now one of the most diverse technology organizations in the world, with a leadership position in cloud services, a booming advertising business, and even a hand in electric vehicle production through its equity stake in Rivian Automotive.
Still, e-commerce is by far Amazon's most important business unit. During the first half of 2022, it generated $199.5 billion in sales, which represented 84% of the company's total revenue. But it grew at a rather benign pace of 3.2% compared to the first six months of 2021, and since e-commerce is so overrepresented in Amazon's overall business, it's set to drag the company's annual revenue growth down to the slowest pace in years.
But that 11% growth estimate might be worse if not for Amazon Web Services (AWS), the company's cloud services arm. It only accounted for a fraction of Amazon's total revenue in the first half of 2022, but it grew by an impressive 34.8%, which reflects the corporate world's appetite for digitizing their businesses, even in a slowing economy.
Plus, AWS has been responsible for all of Amazon's operating income over the last four quarters, as the e-commerce business has posted losses. The company now says it will temporarily stop hiring new corporate employees for its retail segment to save costs and stem that bleeding.
There is some good news for Amazon
The broader economy is making real attempts to recover in 2023 and beyond. Inflation has crushed consumer spending power lately, but inflation expectations continue to fall, and at least one Wall Street investment bank believes the core measure could fall to just 2.9% by the end of next year. That would be close to the U.S. Federal Reserve's target rate of 2% and down significantly from the 40-year high of 9.1% back in June.
If that's the case, interest rates will likely stop moving higher next year, which could reignite consumer spending, and potentially provide a lift to Amazon's gigantic e-commerce segment. The company may even be in a stronger position than it was last year, as it has continued to add new high-profile partners to Amazon.com, such as Peloton Interactive, for instance.
Additionally, a stronger consumer could lead businesses to spend more on advertising, which is another emerging area at Amazon. It has generated $33.9 billion in revenue for the company over the last four quarters but could improve significantly thanks to the blockbuster assets it has acquired for its Prime streaming platform, like the NFL's Thursday Night Football.
Amazon stock is a buy now, especially for the long term
Amazon stock is trading down about 37% from its all-time high, so this could be a great time to build a position ahead of a stronger 2023. It's also more affordable for investors to buy at the moment because a single share costs just $118 thanks to the company's recent 20-for-1 stock split, which shrank it down from a price of $2,447.
Plus, even beyond e-commerce, Amazon's opportunities are enormous. AWS continues to represent an increasing amount of the company's overall revenue, and since the cloud industry could be worth over $1.5 trillion annually by 2030, according to Grand View Research, there's significant upside potential in that business.
Therefore, while investors should begin turning their attention to 2023, Amazon doubles as a fantastic bet for the next five to 10 years as well.
