After its shares tanked in 2022, Amazon (AMZN +2.05%), like many of its big tech peers, had a remarkable bounce-back year in 2023. And as we enter 2024, investors will find it very easy to be optimistic.
The possibility of a stronger economic backdrop this year can drive better business results. And with the Federal Reserve expected to cut interest rates, investor enthusiasm could rise even more.
Besides these points, here are three compelling reasons to buy Amazon stock like there's no tomorrow.
1. Multiple growth drivers
I think a key reason why Amazon makes for such a wonderful investment is that it benefits from numerous growth drivers. Of course, most investors are familiar with the company's dominance in e-commerce. Amazon went from selling just books online to now selling anything imaginable. And it now attracts 38% of all online spending that happens in the U.S.
This lead means that Amazon should continue to gain a large chunk of the growth of the e-commerce sector. With less than 16% of retail spending in the U.S. as e-commerce, there is a long runway to go.
Amazon Web Services (AWS), the company's cloud division that controls about a third of the global market, is also incredibly important. AWS will continue benefiting as enterprises shift their spending off-premises thanks to cost savings and flexibility. Grand View Research thinks the cloud industry will hit $1.6 trillion in revenue by 2030, putting AWS in an advantageous position.
Behind only Alphabet's YouTube and Netflix, Amazon Prime Video is the third-most popular streaming service in terms of TV viewing time in the U.S. As this form of entertainment continues becoming more popular in the years ahead, compared to traditional cable TV, Amazon has a lucrative tool to drive subscription revenue.
Then there's digital advertising, an up-and-coming segment that is boosted by the popularity of the online marketplace. Because Amazon.com had 4.7 billion visitors in the month of November, it's a smart place to place ads. This division raked in $12.1 billion of revenue in the third quarter of 2023, up 25% year over year.
NASDAQ: AMZN
Key Data Points
2. The protection of an economic moat
It's also a fantastic idea to buy Amazon stock because of the company's wide economic moat. This factor helps bolster Amazon's competitive standing and protects it against the possibility of disruption.
For starters, the company's scale is unmatched. By operating an enormous logistics footprint, Amazon is able to ship products at low costs. And this helps improve the customer experience.
The online marketplace benefits from powerful network effects. Those 4.7 billion visitors attract merchants looking to sell to a massive customer base. And with more sellers on the platform, there is a gargantuan selection of merchandise to shop from as a result. So the marketplace gets more valuable as it gets larger.
Amazon's data advantage also cannot be ignored. In the digital age, this becomes even more important. The e-commerce operations can glean insights from all the data collected about shopper behavior, which can then be used to improve features on the site.
And thanks to its dominance in the cloud industry, AWS can amass more data from its clients than rival firms, which can be directed toward various initiatives, especially when it comes to artificial intelligence (AI).
3. Trading at a reasonable valuation
Besides multiple growth engines and an economic moat stemming from lots of sources, investors should buy Amazon stock like there's no tomorrow because of its reasonable valuation. Its shares soared 81% in 2023, crushing the Nasdaq Composite's gain of 43%. But the stock remains about 20% below its peak price, and it trades at a price-to-sales multiple of 2.8 right now. That's below its 10-year historical average.
Investors are faced with an opportunity to buy one of the best businesses in the world at a valuation that isn't ridiculous at all. Now is a good time to act.
