There's been a resurgence in stock splits in recent years, and the reason for the attraction is clear. The move is historically preceded by a long period of considerable stock price increases.
Furthermore, consistent and robust growth is evidence of the underlying strength of the business operations and effective management, which suggests that strong stock price appreciation will likely continue.
A few examples from the past couple of years help illustrate this point:
- Nvidia: 4-for-1 split in July 2021.
- Amazon (AMZN 0.30%): 20-for-1 split in June 2022.
- Shopify: 10-for-1 split in June 2022.
- Alphabet: 20-for-1 split in July 2022.
- Tesla: 3-for-1 split in August 2022.
Each of these split stocks has not only outpaced the broader market in 2023 but, more importantly, outperformed the major market indexes by manyfold over the past decade.
Investors are taking a fresh look at these stocks with an eye toward the future, and with good reason. The S&P 500 is less than 2% from a new all-time high. That, combined with its 20%-plus increase from its trough, will mark the beginning of a new bull market.
While that might seem trivial, consider this: Going back to 1957, bull markets have lasted five years on average, and generated gains of more than 169%. It's said that a rising tide lifts all boats, so investors are eager for the bull to start its run.
Image source: Getty Images.
While there's a strong argument for buying each of these stocks (I own them all myself), Amazon might be the most compelling opportunity right now. At less than $175 per share, the price is within reach of most investors. Furthermore, the stock had gained more than 1,000% in the decade leading up to its stock split last year.
Lastly, Amazon has an increasing number of opportunities that could propel the stock much higher in the months and years to come.
E-commerce
It's difficult to overstate Amazon's importance when it comes to e-commerce. It's the most visited online retail site worldwide, with roughly 3.2 billion monthly visits, according to online data provider Statista, and accounted for 38% of all online sales in the U.S. For context, Walmart was a distant second with roughly 6%.
After a lull caused by macroeconomic headwinds, worldwide digital retail is expected to accelerate from $3 trillion in 2023 to $5 trillion by 2028, a compound annual growth rate (CAGR) of 10%, according to Statista.
As the e-commerce leader, Amazon is well situated to benefit from the improving economy.
Cloud computing
Amazon pioneered modern cloud computing and remains the industry leader. In the third quarter, Amazon Web Services (AWS) was the leading cloud-infrastructure services provider worldwide, with 31% of the market, according to market analyst firm Canalys. Despite increasing competition from the likes of Microsoft Azure and Alphabet's Google Cloud, it remains atop the pack.
Despite the downturn, cloud computing continued to grow, albeit at a slower pace. With the economic clouds lifting, growth is expected to reaccelerate. The global cloud market is expected to hit $678 billion in 2023, climbing to $2.4 trillion by 2030, a CAGR of 20%, according to Fortune Business Insights.
Then, there's the rapid adoption of artificial intelligence (AI) to consider. Amazon has long deployed AI to improve its business operations, using these sophisticated algorithms to make product recommendations, forecast inventory, plan delivery routes, and more.
The company is also at the forefront of the recent AI gold rush, offering a wide variety of AI services to its cloud customers, including the latest generative AI has to offer.
As the cloud infrastructure leader, Amazon will benefit from the continuing migration of data to the cloud and the mad dash to adopt AI.
Digital advertising
While it doesn't grab as many headlines as online retail, cloud computing, or AI, investors shouldn't sleep on Amazon's growing clout in the digital advertising market.
Beyond the real estate on its e-commerce platform, the company will begin showing "limited advertisements" on Prime Video beginning in early 2024. For viewers who want to opt out, it will offer the option for an extra charge of $2.99 per month. Amazon is also capitalizing on its Internet Movie Database (IMDb) site and its ad-supported Freevee streaming service to boost ad revenue.
Digital advertising has long been dominated by the duopoly of Google and Meta Platforms. Still, Amazon has raced up the charts in recent years to ascend to No. 3. Amazon is also gaining ground and is expected to control 7.5% of the global market in 2023, rising to 9.2% by 2025, according to market research firm Insider Intelligence.
Online ad spending worldwide is expected to grow 9.5% to $601 billion this year, climbing to $871 billion by 2027, averaging growth of about 10%, according to Insider Intelligence. Amazon's increasing market share will give it a larger slice of a growing pie.
A compelling opportunity
As illustrated above, there are lots of reasons to like Amazon stock. Taken together, the company's dominance of e-commerce and cloud computing, its growing influence in digital advertising, and the significant prospects represented by AI paint the picture of a vast opportunity.
There's one more reason to buy now. Amazon stock currently sells for just 2 times forward sales, well below its three-year average price-to-sales ratio of 3.5. So, despite its recent rally, the stock is still cheap by historical standards. Don't expect this sale to last for long, as Amazon will likely ride the wave of the coming bull market to new heights.
