After suffering a 50% drop in its stock in 2022, Amazon (AMZN -1.07%) has delivered an impressive turnaround this year.
Last year, high inflation and rising interest rates curbed consumer discretionary spending and caused significant declines in Amazon's e-commerce segments. However, in 2023, the company pulled its retail business back to profitability while delivering multiple quarters of impressive earnings.
As a result, Amazon's stock is up around 80% since Jan. 1. The company is on a promising growth trajectory with a recovering retail business and an expanding position in artificial intelligence (AI).
Now is an excellent time to learn more about this tech giant and potentially invest before it's too late. Here are two reasons to buy Amazon's stock like there's no tomorrow.
1. Amazon's comeback this year proves it's one of the most reliable investments over the long term
In 2022, Amazon's two e-commerce segments posted operating losses totaling $10.6 billion. The company managed to stay profitable thanks to its highly lucrative cloud business, Amazon Web Services (AWS). However, the steep declines made investors question whether Amazon's business would fully recover and if those vulnerabilities made it a risky investment.
The tech giant reacted quickly to poor macro conditions by introducing cost-cutting measures. Throughout 2022, it closed or canceled construction on dozens of warehouses, wound down unprofitable projects like Amazon Care, and laid off thousands of workers. The company has continued to prioritize profits this year, cutting thousands more jobs as recently as November, specifically in its music streaming, gaming, and Alexa divisions.
Amazon's restructuring has clearly paid off. In the third quarter of 2023, the company posted revenue growth of 13% year over year, beating analysts' expectations by $1.5 billion. Meanwhile, operating income from its North American segment exceeded $4 billion, a marked improvement from the $412 million in losses it reported in the prior-year period.
Amazon's leadership proved its strength by quickly getting the company back on track after a challenging 2022. This year's stock price recovery illustrates why it's crucial for investors to take a long-term view and keep holding onto the shares of companies they believe in during market downturns. Those who sold Amazon's stock as it fell last year to cut their losses will not have benefited from its rebounding share price in 2023.
The company's solid management team has shown it can successfully navigate temporary headwinds, making its stock one you can confidently invest in over the long term.
2. Big gains projected over the next two years
E-commerce sales made up about 19% of all retail purchases worldwide in 2022, and that share is projected to hit 23% by 2027. Amazon dominates the industry in multiple countries. In the U.S. alone, it holds a 38% market share in online retail. In comparison, Walmart, which holds the second-largest share, is responsible for just 6%.
Amazon has significant earnings potential in the sector as consumers increasingly choose its site over brick-and-mortar stores.
Additionally, the company is making promising headway in AI through AWS. Grand View Research forecasts that the AI market will expand at a compound annual rate of 37% through 2030. Amazon is using AWS' leading market share in cloud computing to carve out a lucrative role in the industry.
This year, AWS has introduced a diverse range of new AI tools as it works to meet the growing demand for such services, and it also announced a venture into chip development.
Data by YCharts.
Amazon is dominating two rapidly expanding markets, and its stock price is likely to reflect that growth well into the future. However, that doesn't mean it won't deliver big gains in the short term.
The chart above shows its earnings could exceed $4 per share by fiscal 2025. That figure multiplied by Amazon's current forward price-to-earnings ratio of 56 yields a stock price of $257. In other words, if the market continues to value Amazon in the same way as it does now, its shares could rise by 72% over the next two years.
With a recovering e-commerce business and solid position in AI, that amount of growth is not out of the question. As a result, Amazon stock is a screaming buy ahead of the new year and one you can confidently buy like there's no tomorrow.
