Just like it does a wonderful job taking care of its customers, Amazon (AMZN -1.01%) continues to cater to its shareholders as well. The tech titan reported first-quarter 2024 revenue and earnings per share that exceeded Wall Street estimates. This helped propel shares higher; they're now up 25% just this year (as of May 9).
With a market cap of nearly $2 trillion, Amazon is undoubtedly one of the world's most valuable businesses. But that doesn't mean its forward returns are going to be limited. In fact, this remains the ultimate growth stock to buy with $1,000 right now.
Multiple growth engines
Investors seem to be very happy with Amazon's advertising business, which has become a top player in the industry that can be mentioned in the same breath as heavyweights Alphabet and Meta Platforms. The company's ad sales surged 24% year over year in Q1 to total $11.8 billion.
Besides displaying ads on its online marketplace, a website that sees billions of visitors every month, Amazon started showing ads on its Prime Video service. As more consumers turn to streaming entertainment, the ability to monetize this attention will only increase over time.
Amazon's remarkable success in the digital ad space highlights just one of the numerous growth drivers the company possesses. Of course, we can't ignore e-commerce, which still only represents less than 16% of overall retail spending in the U.S. According to Grand View Research, money spent shopping online will rise by 11% annually until 2030.
With a nearly 40% online share today, Amazon is going to capture a sizable chunk of this opportunity by leaning heavily on its sprawling logistics footprint to better serve customers with fast and free shipping. No other company can compete with this.
Cloud computing is another area that will drive results for a very long time. Amazon Web Services (AWS), the company's industry-leading cloud platform that has 31% market share, posted a 17% revenue jump in Q1. While it only represented 17% of Amazon's total sales, it generated 61% of operating income. AWS is an extremely profitable and scaled player in the industry.
The rise of artificial intelligence (AI) will only result in more demand for AWS' various offerings. Clients can lean on its tools and features to develop their own AI services, making AWS more of a mission-critical infrastructure provider.
Profits are soaring
One of the biggest criticisms about Amazon has been that it generates low profits. Because the business invests so aggressively in new growth opportunities, its bottom-line performance hasn't been a top priority. But this is starting to change for the better.
In the first three months of this year, the company produced $15.3 billion of operating income, up 219% year over year. Cost-cutting measures and a heightened focus on driving efficiencies across the organization are starting to bear fruit. Operating income is expected to total $12 billion in Q2 (at the midpoint), translating to a 56% increase compared to the second quarter last year.
Long-term investors should want the management teams of the businesses that they own to operate with sound financial principles in mind. However, one goal is also to not ignore expansion opportunities that can boost earnings power over time.
"We remain focused on driving better experiences for our customers while also delivering efficiency improvements," CEO Andy Jassy said on the Q1 2024 earnings call. That seems like the right balance.
Consider the valuation
Since the start of 2023, shares of Amazon have soared 126%. There is much more optimism surrounding the business than there was a couple of years ago, thanks to strong financial results.
The valuation, now at a price-to-sales ratio of 3.4, still doesn't look expensive to me, though. This multiple is in line with its trailing-five-year average.
Investors looking to load up on a fantastic growth stock that also trades at a reasonable valuation should consider buying Amazon today.
