The bull market that has captivated Wall Street is just entering its third year, turning in its best performance since 2011. It pushed the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to record heights earlier this week.
One of the factors fueling this record run is recent advances in artificial intelligence (AI). The technology, which first burst on the scene in early 2023, is unlike anything that came before. Generative AI can not only streamline processes but also create original text and images, potentially increasing productivity and sending more profits to the bottom line.
Investors might be surprised to learn that Amazon (AMZN 2.61%) has been using earlier forms of AI for decades, which gave the company a running start when AI came calling early last year. This history of deploying AI helped Amazon fashion the AI solutions it offers to customers. Add to that the company's dominant positions in cloud computing and digital retail and its strong position in digital advertising, and you have a company that's a quadruple threat in the tech industry.
Strong growth across its quartet of businesses has driven the stock to record heights, and according to Wall Street, this might just be the beginning.
Image source: Getty Images.
An economic recovery
There's no denying the challenges of the past several years, marked by macroeconomic headwinds and decades-high inflation. Those conditions have recently given way to a robust recovery, with consumer sentiment hitting its highest point in more than six months. Additionally, the Federal Reserve Bank just announced the second in its ongoing series of interest rate cuts as the specter of inflation fades.
The rebound in the economy has helped drive improving results for Amazon. For the third quarter, revenue of $159 billion rose 11% year over year, while diluted earnings per share (EPS) of $1.43 jumped 52%.
Improvements from each of the company's major operating segments helped drive the results. Online retail sales in North America increased 9%, while international sales climbed 12%. The reacceleration of Amazon Web Services (AWS) -- the company's cloud infrastructure service -- continues, jumping 19%, its highest rate of growth since late 2022. Amazon also continued to make inroads in digital advertising, one of its fastest-growing segments, which increased 19%.
So many ways to win
Amazon is unmatched in the online retail business it pioneered. The company captured 38% of U.S. e-commerce sales in 2023, more than its next 15 largest competitors combined, according to data provided by eMarketer. The company's leadership is anticipated to continue this year, as Amazon is expected to account for 40% of online sales in the U.S. in 2024.
Amazon is also the undisputed leader in cloud computing, another business that didn't exist before the company pioneered it. AWS is the cloud infrastructure leader, capturing 33% of the market in the second quarter, according to research firm Canalys. Microsoft Azure and Alphabet's Google Cloud took up the No. 2 and No. 3 positions, with 20% and 10% of the market, respectively.
NASDAQ: AMZN
Key Data Points
During the company's third-quarter earnings call, CEO Andy Jassy updated investors on Amazon's AI progress: "In the last 18 months, AWS has released nearly twice as many machine learning and [generative] AI features as the other leading cloud providers combined." He believes these efforts have helped reignite Amazon's cloud growth, which has waned in recent years.
Let's not forget Amazon's growing digital advertising segment. In addition to the ads it shows on its e-commerce website, the company has expanded its reach through commercials displayed in Prime Video, its ad-supported Freevee and Amazon Music streaming services, and Twitch video game streaming service. It has also become quite adept at using AI to help its ads reach their target market. This has helped advertising become Amazon's fastest-growing business in recent years.
The combination of e-commerce, cloud computing, AI, and digital advertising makes Amazon a quadruple threat, something few businesses ever achieve.
Wall Street is undeniably bullish
Amazon hit a new all-time high of more than $210 on Thursday, yet many on Wall Street feel it's still an unqualified buy. Of the 66 analysts who covered the stock in October, 63 of them -- or 95% -- rated it a buy or strong buy, and none recommended selling.
In the wake of the company's robust results last week, J.P. Morgan analyst Nicolas Jones maintained an outperform (buy) rating on the stock while assigning a Street-high price target of $285. For investors keeping track at home, that represents additional upside of 36% compared to Thursday's record-high close. Jones cited Amazon's dominance in online retail, its gains in digital advertising, and the demand for AI that continues to boost AWS.
One of the most appealing reasons to buy Amazon is its valuation. The stock is currently selling for roughly 3 times forward sales, making it among the most attractively priced of its "Magnificent Seven" peers. It's also a steal for a company with leadership positions in so many growth industries.
