If you've owned any of the market's so-called FAANG stocks -- the elite group of big-tech companies -- for any meaningful stretch of time during the past few years, you've probably done pretty well. But as the old adage goes, past performance is no guarantee of future results.
With most everything returning to long-term norms following the effective wind-down of the COVID-19 pandemic, we should start to see all stocks -- even the FAANG shares -- better reflect their underlying companies' true worth.
One FAANG name that appears to have better prospects than the others right now is e-commerce giant Amazon (AMZN +0.30%). Here's why.
NASDAQ: AMZN
Key Data Points
Why Amazon is your best bet right now
Don't panic if you already own one of the other FAANG stocks and don't have room in your portfolio for a new pick just yet. You'll be fine. All of them are long-term winners.
But the metrics look especially favorable for Amazon right now. Analysts are calling for top-line growth of a little more than 11% this year, with comparable-revenue growth in the cards every year through 2028. Profits are projected to grow from last year's expected figure of $2.68 per share all the way to $9.25 in the final year of that five-year stretch.
How is this older, already-enormous company still producing such growth? In a couple of different but complementary ways. One of these ways is its inaugural business: e-commerce. But there's a twist. Veteran investors will recall a time when Amazon was barely profitable -- if profitable at all. Its mission was growth at almost any cost.
A funny thing's happened over the course of just the past few years, perhaps cemented into place by the unique circumstances of the COVID-19 pandemic. Amazon's e-commerce operation has turned more profitable than it's ever been before. Even its long-beleaguered international e-commerce arm is finally inching its way to sustained operating profitability.
It's not exactly happening in the way you might expect, however. Over the course of the past three years, the company has turned up the heat on its advertising business, which allows third-party sellers to more prominently feature their products at Amazon.com. This venture produced a little over $31 billion in revenue in 2021 but has since reached an annualized pace of nearly $44 billion. Market research outfit Insider Intelligence believes this figure will reach on the order of $68 billion worth of revenue in 2025.
This is high-margin revenue too, leveraging the Western world's most-frequently visited online-shopping site that Amazon spent the last 25 years perfecting. Indeed, it's conceivable that its advertising venture could be a bigger and better breadwinner than e-commerce alone might ever have become.
Amazon's other key growth driver for the near and distant future is Amazon's cloud-computing arm, Amazon Web Services (AWS). It may not be Amazon's biggest business as measured by sales. In fact, AWS only accounts for about 16% of the company's total top line. Yet, cloud computing regularly makes up more than two-thirds of Amazon's operating income, and it's still just getting started.
Mordor Intelligence says the cloud-computing market is set to swell from roughly $700 billion this year to more than $1.4 trillion in 2029, similar to projections from Precedence Research as well as GlobalData.
Data source: Amazon. Chart by author. Figures are in billions.
Already a market-share leader, AWS is positioned to capture at least its fair share of this growth. It may capture more than its fair share of this growth, in fact, now that it's custom-building cloud-computing platforms that specifically work with the market's preferred AI tech. For instance, AWS and Nvidia are now collaborating to offer supercomputing infrastructure built around Nvidia's powerful NVIDIA GH200 chips. This is the sort of powerful platform needed for next-generation generative artificial intelligence (AI) offerings.
Other FAANG stocks are ok too, but...
Again, don't panic if you already own stakes in one or more of the other FAANG stocks and aren't ready to reorganize your holdings. There are certainly plenty of worse ways to be positioned as we move deeper into the first half of 2024.
But if I had to choose one, Amazon is the group's top prospect right now. And for what it's worth, the analyst community agrees. The vast majority of this crowd currently rates the stock as a strong buy, and the consensus target of $184 is a healthy 17% above the stock's present price.
