It's nearly impossible to keep up with Wall Street's endless cycle of upgrades and downgrades. Trying to pinpoint where the stock price will end up over the course of a year is a crapshoot at best. The real value comes from the commentary, which can sometimes give insight into analysts' reasoning. Such is the case here.
Citi analyst Ronald Josey maintained his buy rating on Amazon (AMZN +1.33%) stock, calling it a "Top Pick" for 2024 while raising his price target to $210. That represents potential gains for investors of 37% compared to Tuesday's closing price, even though the stock has already surged 83% higher so far this year.
NASDAQ: AMZN
Key Data Points
The analyst noted that online advertising and e-commerce have gained momentum over the past few months, and he believes that will continue. Josey also suggests that the focus on cost-cutting and optimization -- which have weighed on Amazon's cloud results over the past couple of years -- is essentially over.
Investors watching the economy will note that inflation has been slowing, and economists are beginning to believe the Federal Reserve Bank's campaign of rate cuts may finally be over. The improving conditions suggest that consumers and businesses alike will have more discretionary income over the coming year, which will likely boost digital advertising, online retail, and cloud-infrastructure spending, all of which will benefit Amazon, assuming Josey's logic works out.
The analyst isn't alone in his enthusiasm. Analysts at Bernstein named Amazon their "Best Idea" for 2024, citing fixed-cost leverage and margin strength. Roth MKM analysts called Amazon their "Top Mega Cap pick for 2024," saying it's the only megacap they expects will deliver "accelerating revenues and expanding operating margins."
Strangely absent from the conversation are recent developments in generative AI and Amazon's prospects in the field. Last month, the company released Amazon Q, its AI-powered digital assistant. It promises to make users more productive by tapping into company data to speed up mundane and time-consuming tasks. This will open a new, potentially lucrative revenue stream for Amazon.
Finally, Amazon stock is selling for roughly 2 times next year's sales, well below its five-year average of 3.5 times sales and remarkably cheap considering the company's prospects. Taken together, the evidence suggests Amazon stock is a buy.
