Since the beginning of last year, Amazon (AMZN +0.81%) stock has experienced a resurgence. It is near an all-time high, as its recovery erased all the losses of the 2022 bear market and rose by about 55% over the last year.
With that gain, investors may question what it can do over the next year. Will its march higher continue, or will its considerable growth over a short time frame set it up for another pullback over the next 12 months?
NASDAQ: AMZN
Key Data Points
Why Amazon stock has risen
At first glance, investors may credit Amazon's gains with artificial intelligence (AI). Indeed, the optimism surrounding generative AI has boosted stocks such as Nvidia and Palantir. With its position as the leading cloud infrastructure provider through its Amazon Web Services (AWS) segment, mastering AI is critical to Amazon maintaining its market lead.
Data source: Statista.
To this end, Amazon invested $4 billion in a company called Anthropic. Anthropic's software trains Amazon's generative AI models by working with AWS's proprietary AI chips. Considering the tremendous demand for such technology, Amazon's work in this area may foster a competitive advantage in the AI field.
However, AWS is not the only reason to like Amazon stock. Although online sales are a large but relatively slow-growing part of the business, the company has leveraged its massive web presence to develop separate businesses, and the most successful is likely its digital advertising business.
Considering the success of Alphabet and Meta Platforms in advertising, it may not surprise investors that this is the fastest-growing business listed in its quarterly reports. In the first quarter of 2024, digital ads brought in almost $12 billion in net sales. That was a yearly increase of 24%, outpacing the 17% growth rate of AWS.
How this affects the stock
Overall, Amazon's net sales came in at $143 billion in the first quarter of 2024, 13% higher than year-ago levels. That also means the company's sales have kept pace with past quarters, as net sales grew by 12% annually in 2023.
During that time, Amazon limited cost and expense increases to 4%, allowing net income to rise to over $10 billion. In comparison, Amazon earned just under $3.2 billion in the first three months of 2023.
Despite such improvements, the company expects a slowdown as it forecasted a net sales increase between 7% and 11% in Q2, citing unfavorable foreign exchange rates as a reason for that slowdown.
Nonetheless, the rapid recovery in net income has reflected well on its valuation. Its P/E ratio of 56, while higher than some peers, is actually near a multiyear low for Amazon. Hence, the fact that it could experience significant multiple expansion without rising above historical norms should bode well for the stock.
Amazon in one year
Amid its low valuation, Amazon stock appears on track to closely approximate last year's growth rate over the next year.
Amazon could experience another bear market pullback if the slowing in net sales growth comes to pass and continues. However, Amazon seems to have emerged as an AI leader, and its market lead in the cloud and investments in AI bode well for the company's future.
Moreover, Amazon's retailing segments seem to have fostered success in digital advertising and other businesses. Hence, even if the online sales business does not perform well, continued successes in smaller but more profitable businesses could take the internet and direct marketing retail stock higher over the next year.
