One of the more significant stock market stories of 2023 has been the resurgence of big tech stocks. Many are riding the wave of artificial intelligence (AI) hype and the potential disruption that can come with it. Amazon (AMZN -0.09%) is no different and is up more than 50% this year.
After a big stock market rally in the first half of 2023, investors may wonder if now is the time to buy Amazon or if they've missed the train. The short answer is, there's no better time than the present. The longer answer is, it depends on what kind of investor you are. Let's dive deeper.
Amazon may be on pace to double its revenue by 2030
Even with a market cap of more than $1.3 trillion, Amazon is still a growth stock by most standards. Considering how much the company reinvests for continued growth, I believe it's more important to focus on its revenue growth versus profits (although it makes billions of that, too).
In the first quarter of 2023, Amazon pulled in $127.4 billion in revenue, up 9% year over year. This growth is a slight slowdown from previous years but is no small feat, given current macroeconomic conditions. Wall Street analysts on average forecast second-quarter revenue of about $131 billion, which would be up around 8% year over year.
Regardless of Amazon's second-quarter performance, if the company can maintain 10% annual revenue growth through 2030, its revenue could double. Accomplishing that doesn't seem far-fetched, given the growth prospects of some of its industries.
| Global Industry | Expected Annual Growth Until 2030 |
|---|---|
| E-commerce | 11% |
| AdTech | 13.7% |
| Cloud computing | 14.1% |
Data source: GMD Research and Grand View Research.
These growth rates are just expectations, but if we assume they're relatively accurate, there's no reason to believe Amazon can't at least achieve 10% annual revenue growth until 2030.
AWS still pads Amazon's bottom line
Amazon's e-commerce business made it what it is today, but Amazon Web Services (AWS) is the breadwinner, considering it accounts for most of the company's profits. AWS growth has been slowing down -- Q1 revenue was up year over year but down slightly from Q4 2022 -- but it still holds a commanding 32% market share in the global cloud market.
AWS is facing increased scrutiny as investors worry about Microsoft's Azure and Alphabet's Google Cloud gaining ground. The concerns are valid, but both platforms are still a long way from catching up with AWS. As the global cloud market grows, AWS is in a position to maintain a leading market share.
Amazon has been integrating AI into its services for a while (think: product recommendations and customer service bots), but as AI integration becomes a main focus for many cloud platforms, Amazon will likely invest more in the effort. Given Microsoft's partnership with ChatGPT's creator OpenAI, I believe Amazon knows where its cloud priority should be right now.
A spark in advertising at just the right time
With a slowdown in AWS revenue growth, growth in Amazon's advertising segment is picking up steam at just the right time. In Q1 2023, Amazon's advertising generated revenue of $9.5 billion -- $3.1 billion more than just two years prior.
If the trend of previous Q1 to Q2 advertising revenue growth continues, it's plausible Amazon's advertising revenue could cross the $10 billion mark for Q2 2023. (Q4 2022 was the only time it's ever accomplished that.)
Is Amazon a buy right now?
For long-term investors, there's no doubt that Amazon is a buy right now. Broader economic conditions are still questionable at the moment, so there are likely to be some short-term bumps in the road. Still, the long-term outlook is strong.
Despite Amazon's rally in the first half of 2023, the stock is still fairly priced, compared to previous years. Its price-to-sales ratio -- which tells you how much investors are willing to pay per $1 of a company's sales revenue -- is around 2.5, one of the lowest marks in recent years.
Data source: YCharts.
It's not below 2, where it was at the beginning of the year, but it's about half of what it was during the 2020 to 2021 bull run.
If you want to invest but are concerned a correction may happen, consider dollar-cost averaging your way into a stake instead of investing a lump sum. Either way, I don't imagine you'll be disappointed with your investment five to 10 years down the road.
