The market has been down on Amazon (AMZN 1.43%) stock for a while now. It's down 12% over the past year despite robust performance as the company continues to plow money into its artificial intelligence (AI) platform.
Might it be oversold at this point? The average Wall Street consensus target is a 42% gain over the next 12 to 19 months, and one analyst sees it rising 79%. Let's see if that's a real possibility.
Image source: Amazon.
Setting itself up for success
Amazon raised eyebrows when it said it would spend $200 billion on AI this year, the most of any of the hyperscalers. CEO Andy Jassy addressed the expected pushback by saying, "We have deep experience understanding demand signals in the AWS business and then turning that capacity into strong return on invested capital."
AWS, or Amazon Web Services, is the company's cloud business. It's the largest in the world, with a $142 billion run rate. Sales increased 24% year over year in the fourth quarter, the highest rate in years, and on top of an expanded base. It made new deals with industry giants like Visa, Salesforce, DoorDash, and OpenAI, in addition to many others.
The company expects a windfall as clients shift spending from on-premises to the cloud, and it's positioning itself to benefit.
NASDAQ: AMZN
Key Data Points
Growth in every segment
Although the talk today is all about AI, Amazon is still the leader in e-commerce, and it continues to make strides in the business. It recently launched Amazon Now, a service that gets orders to customers within 30 minutes, in several markets, and it's planning to expand it to new regions. In India, for example, Prime members who used the services tripled their shopping frequency, and similar results in other locations could seriously boost sales.
Advertising remains a high-growth segment, with a 22% year-over-year increase in sales in the fourth quarter, right behind AWS. Prime Video ads now have 315 million viewers, a great attraction for advertisers, and Amazon's new AI features make it easy to create full campaigns in hours instead of weeks.
Amazon is also making advances in its satellite business and others, providing new future growth avenues.
Should you follow Wall Street?
Although the market is down on Amazon stock right now, Wall Street is nearly unanimous in calling it a buy. The price looks too low compared to the opportunities.
I can't tell you whether the stock will gain 79% this year, but it looks poised to keep creating shareholder wealth for long-term investors.
