Up 75% in 2023, Amazon (AMZN +0.30%) stock is once again on fire. Amazon was already a giant at the start of the year, but the company added a staggering $680 billion in market cap this year alone.
For comparison, that's more than the total market cap of McDonald's ($212 billion), Netflix ($206 billion), and Bank of America ($244 billion) -- combined.
At any rate, investors want to know whether this amazing run will continue. Here are two reasons why it should, and one reason why it may come to a screeching halt.
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Amazon is the world's top brand
Topping the reasons why it's time to buy Amazon is the company's fantastic brand recognition. According to research firm Brand Finance, Amazon is the most valuable brand in the world today.
NASDAQ: AMZN
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That gives the company an enormous leg up as it competes with other corporate giants across multiple industries: Microsoft and Alphabet in the cloud services market, Walmart, Costco, and Target in retail and e-commerce, Disney, Apple, and Netflix in video streaming, and Meta Platforms in digital advertising.
In short, Amazon, thanks to its relentless focus on its customers, has built a brand unlike any other. And that's not easy to find.
Amazon's new leader has shown he can deliver big profits
Whenever a legendary founder or chief executive officer steps down, the new leader must prove themselves. Such was the case for Amazon CEO Andy Jassy. After hitting an all-time high just days after Jeff Bezos retired in July 2021, Amazon shares tumbled in the first 18 months of Jassy's reign. Ultimately, the stock bottomed out in late December 2022, down more than 56%.
However, as noted earlier, the stock has enjoyed a terrific run this year. So what changed? In short, Amazon's profits have come roaring back. Under Jassy's leadership, the company instituted a major cost-cutting initiative, including:
- Reducing its workforce by 27,000.
- Canceling or delaying key infrastructure projects (such as a second phase of its HQ2 in Virginia).
- Utilizing 750,000 robots at Amazon fulfillment centers.
As a result, Amazon's net profit surged. Net income over the last 12 months stands at $20 billion. That's a complete turnaround from late 2022 when net income had slipped into the red. Similarly, Amazon's free cash flow bounced back, thus providing the company additional resources to spend on paying down debt, capital expenditures, or share repurchases.
Reason to sell: AWS growth is slowing
Despite its rock-solid brand and soaring profitability, one dark cloud is on the horizon for Amazon: Its chief growth engine is losing steam.
Amazon Web Services (AWS) is the world's leading cloud services provider. In its most recent quarter (the three months ending on Sept. 30, 2023), AWS generated $23.1 billion in revenue.
The problem? The growth rate for AWS is in steady decline. In fact, it has now declined or been flat in each of the last eight quarters, falling from 40% growth in Q4 2021 to 12% growth in Q3 2023.
Even more concerning, Amazon's competitors are gaining ground. Microsoft's cloud unit Azure reported 29% annual growth in its most recent quarter. Alphabet, the parent company of Google Cloud, registered 22% year-over-year growth.
As those competitors take market share in the lucrative cloud services market, Amazon's margins will come under pressure -- perhaps eating away at the company's overall profitability.
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Despite the slowing growth, Amazon remains a well-run company with a sterling brand. And while AWS' sagging growth is worth monitoring, investors shouldn't throw the baby out with the bathwater. Amazon is still a fantastic stock to own.
