Amazon (AMZN 3.43%) is off to a great start in 2024. The e-commerce giant is making progress along all fronts of its multifaceted business, and its stock is up 66% over the past year.
You might not realize that it's still trading below all-time highs. But the way things are going, Amazon stock is likely to surpass that in the coming months, and now is a great time to buy it.
Here are three specific reasons to be confident about Amazon stock this year.
1. Improved systems are paying off in higher e-commerce sales
Amazon made a strategic decision last year to restructure its distribution network from a national one to a regional one. The rationale was that the national network was large and cumbersome, making it take longer, on average, to get products to customers. A regional network stocked with high-selling items would get products to customers faster and at a lower cost.
It now has eight regional distribution centers, and the results speak for themselves. In the 2023 fourth quarter, Amazon delivered 65% more items overnight than in the prior year. CEO Andy Jassy noted that as Amazon fulfills orders faster, customers choose it for more orders.
In a first since 2018, Amazon has decreased its per-unit cost to fulfill globally, and in the U.S., fulfillment cost per unit decreased by more than $0.45 from last year. This allows Amazon to expand its selection profitably at lower average selling prices, improving its chances of gaining market share.
2. AI is powering AWS
Amazon Web Services (AWS) is Amazon's cloud services arm. Until recently, AWS sales were reliable to grow at rates around 35% in a typical quarter. That began to drop when inflation became severe, and client businesses started to cut their budgets.
However, Amazon continues to lead the industry with 32% of the overall market according to Statista, and sales growth improved in the fourth quarter to 13% year over year. Jassy said the company is seeing larger deals accelerate; it announced several new deals with companies like Salesforce, BMW, and Nvidia.
The company launched a robust suite of generative artificial intelligence (AI) services for AWS, and adoption rates are strong. The company offers three layers of AI to meet the varied needs of its clients, from the most customizable to partially customizable, with the top layer being a generative AI "coded companion." Last week, Amazon launched Rufus, a personal shopping generative AI application that takes customer queries and offers product recommendations based on requirements.
Jassy said Amazon will continue to invest heavily in AI since it offers the opportunity to revolutionize the shopping and processing experience for its customers, and it sees this as a multibillion-dollar opportunity over the next few years.
3. Advertising is a high-growth business
Amazon only started to break out advertising as its own business segment in late 2021, when it grew 32% year over year, trailing AWS at 40%. With the other businesses slowing down, advertising has become the fastest-growing reporting segment, increasing 26% over last year in the 2023 fourth quarter. That was driven by sponsored ads.
Advertising is a no-brainer for Amazon third-party sellers since it exposes them to Amazon's hundreds of millions of Prime members and other shoppers. Amazon's top AI helps them target potential buyers with high accuracy.
Amazon recently changed its streaming program to an ad-supported track, like Netflix and Walt Disney, which should pump up this segment even more. This will likely remain a strong business for Amazon in the near term, and as advertisers revisit their budgets after inflation-induced cuts, they're liable to spend more. Some percentage of that will go to Amazon.
These are only part of the story. Amazon is making strides in smaller endeavors like cashierless stores, healthcare, and more. 2024 could be a banner year for Amazon, and in the long term, it's likely to add value to your portfolio.
