Amazon's Stock Performance and Future Outlook: A Comprehensive Analysis

Should Investors Buy Amazon After Its Post-Earnings Plunge? | The Motley Fool

Assuming Amazon's recent trip to all-time highs makes the stock expensive could be a costly mistake. E-commerce and technology giant Amazon (AMZN 0.52%) recently reported its second-quarter earnings. The company's results exceeded Wall Street's expectations in some areas while missing in others. Overall, it's probably fair to call it a mixed bag. Additionally, earnings news dropped amid the stock market's worst two-day sell-off in recent memory. As a result, shares went from an all-time high to dropping over 15% in short order. So, the question is: What now? Amazon didn't give investors the perfect quarter, but there is enough business momentum to make the stock a table-pounding buy after this abrupt sell-off. Here are three reasons to buy the stock right now: Most consumers associate Amazon with its e-commerce business, but Amazon Web Services (AWS), the company's cloud platform, is Amazon's most profitable business by a wide margin. Not only is cloud computing a multidecade growth trend, but artificial intelligence (AI) applications run through the cloud, making the company's cloud performance arguably Wall Street's most significant focus when looking at Amazon. Amazon's year-over-year cloud revenue growth rate accelerated from 17.2% in Q1 to 18.8% in Q2, driven by AI demand. Analysts had expected 17.6% growth, so AWS performed over a percentage point better than expected. Amazon needs to compete in AI. It's fighting competition from Microsoft and Alphabet to maintain its leading global market share, estimated at 31%. CEO Andy Jassy spoke about AI efforts on the call, pegging its AI revenue at a multibillion-dollar run rate. Jassy also discussed a shift in customer needs. Initially, Amazon and other companies jumped headfirst into AI and relied on Nvidia's chips to build the computing power needed to train and operate AI models. However, consumers are looking for more cost-competitive services, which Amazon is responding to with custom in-house AI chips to save money. It's encouraging (though not surprising) to see Amazon invest in adapting to its customers' computing needs. According to estimates from Grand View Research, the global cloud computing opportunity could grow to over $2.3 trillion by 2030. AWS is pacing for just over $100 billion in revenue this year as the top global platform. A lot of growth is up for grabs, so it's great to see AWS performing better than expected and positioning itself to provide better services at lower prices. Amazon's revenue guidance for next quarter fell short of analysts' expectations, which may have contributed to the stock's sell-off. This probably shouldn't concern long-term investors. Consumer-facing companies across Wall Street have rung the alarm that consumers are pulling back more than expected, so why wouldn't it be the same for online shopping? Amazon's financial performance is far more critical for long-term investors. As you can see, Amazon's cash profits from day-to-day operations and free cash flow have soared to all-time highs: Remember, free cash flow accounts for capital investments into the business, so this is after accounting for any money Amazon is pumping into AWS to support AI growth. Amazon's cash-flow explosion makes the stock a juicy bargain, even after the stock ran to all-time highs just a week ago. It becomes glaringly obvious when you compare Amazon's cash flow to its stock price: On a free-cash-flow basis, arguably the primary driver of a stock's intrinsic value, Amazon is nearly the cheapest it's been in a decade despite massive investments in AI. Go by operating cash flow, and it's a firm decade-low. Amazon is even cheaper than during the COVID-19 market crash in 2020. Simply put, Amazon was a no-brainer before market volatility gave it a quick haircut from its recent high. Don't let Amazon's recent run to all-time highs trick you; the stock remains a bargain.

Where Will Amazon Be in 1 Year? | The Motley Fool

Amazon stock slid after earnings, but does it really mean anything? After a steady ascent this year, Amazon (AMZN 0.52%) stock got crushed after it released its second-quarter earnings results last week. The reason? Amazon's guidance didn't impress the market, despite a strong second quarter performance, causing the stock to decline by nearly 13% since, as well as pushing down year-to-date stock gains to just 7% from a peak of 31% last month. However, investors who take a long-term view of the business know such market movements are short-sighted, since they necessarily take into account only the current snapshot of the company's operations. However, investors do get nervous, because they don't know if this update portends trouble up ahead. So what should investors expect from Amazon, and where will the business be a year from now? Amazon reported a 10% year-over-year increase in revenue in the 2024 second quarter, including a 19% increase for Amazon Web services. (AWS). It's investing in all over its business to keep up the momentum, specifically in improving e-commerce and in developing generative artificial intelligence (AI). The market wasn't enthused by management's guidance for third-quarter sales to increase 8% to 11%, but that's within the typical range. Amazon generally beats its own expectations. Here's a chart of management's guidance for the past four quarters, along with what actually happened. Data source: Amazon quarterly reports. Rates are year over year. The second quarter was close to the top of the expected range, but not as much as previous quarters, which came in at the top or beat it entirely. It's likely that Amazon will come in toward the top of guidance in the third quarter, but not a given. Amazon keeps getting bigger, and the bigger it gets, the harder it is to build on top in percentage. For example, total sales were $148 billion in the second quarter. While absolute growth isn't impossible, profitability could be lower. In a year from now, Amazon should be a lot bigger, and it could even surpass Walmart to become the largest company in the world by sales. Andy Jassy has been curtailing spend in many areas. He cut headcount and spearheaded an e-commerce overhaul that's faster and more efficient. However, management is investing substantially in AWS's AI services as it races with Microsoft and Alphabet to capture market share in the growing and lucrative cloud computing segment. It shouldn't come as a surprise to anyone. Aside from the obvious, which is that it's trying to stay on top of the competition, management has made it clear in the past that this is how the model works. It has periods of heavy investments and periods of incredible profitability. Management is guiding operating income between $11.5 billion and $15.0 billion for the third quarter, up from $11.2 billion last year. That's a sharp slowdown. Operating income nearly doubled in the second quarter, and it grew even faster in the previous three quarters. While it invests in AWS, the e-commerce business is becoming more efficient. That gives it some wiggle room to pump money into generative AI and still report solid operating performance for the whole company. Management said that because of the new regional fulfillment strategy, Amazon is able to consolidate shipments and cut transportation time and fees. That results in lower costs and happier customers. Amazon's high-margin advertising business, now reported as a separate segment, once again registered the highest growth among segment, with sales up 20% more than last year. However, that's a deceleration from previous quarters, and it's something to keep an eye on over the next year. Management sees a tremendous opportunity in video streaming ads, which it's just getting started with. In a year from now, the generative AI business is likely to still be at the forefront of the industry, and Amazon's focus specifically. It should, however, achieve its intent of onboarding new business and benefiting from increased client spend. Management said that it continues to see businesses ending their cost optimization efforts, and since 90% of spend is still not in the cloud, the opportunity is enormous. AWS is also a high-margin business, and its growth could eclipse the impact of Amazon's investments. Amazon is growing its other businesses, too. Its pharmacy division is taking off, and it's producing hit streaming content through Amazon MGM Studios. In a year from now, these should continue to grow, and Amazon is likely to roll out new services and businesses. When you're looking to invest, it's important to look for patterns. Does Amazon usually beat guidance? Will Amazon go through compression periods as it builds to come out stronger? Does it bounce back from setbacks? And finally, is management capable of rolling out new products and services profitably? The answer to all of those questions is yes, and Amazon is a great long-term buy.