Amazon’s Stock Position and Potential
The potential in artificial intelligence (AI) makes Amazon, part of the so-called Magnificent Seven, an intriguing stock to consider. However, up until the company disclosed its earnings last week, its stock had seen only modest growth this year, barely climbing in the low single digits.
Its overall rating isn’t particularly high, which is worth noting.
The Magnificent Seven refers to a select group of leading tech firms globally: Apple, Alphabet, Amazon (NASDAQ:AMZN), Meta Platforms, Microsoft, Nvidia, and Tesla. The performance of these stocks tends to reflect the market’s overall health. Many investors view these stocks as solid long-term growth opportunities.
This year’s market has been quite active; while not all of these stocks have excelled, some continue to hit new highs. To give context, by October 30, Amazon was the underperformer in this group, with a year-to-date return of less than 2%. Although it saw a rise after reporting quarterly results, it still lags behind its peers among the Magnificent Seven.
Is now the right time to dive into growth stocks like Amazon?
Investors seemed unenthusiastic about Amazon earlier this year until the earnings report came out on October 30. In contrast, other companies like Nvidia and Alphabet are clearly reaping the benefits and opportunities tied to AI, and this is attracting more investor attention. Nvidia, for instance, produces essential chips for advanced AI chatbots, while Alphabet is leveraging AI chatbots in its Gemini platform to enhance its offerings.
Amazon is also making strides in AI, but the results haven’t been particularly showy.
In its latest report, Amazon disclosed a 13% increase in net sales, reaching $180.2 billion for the period ending September 30. The company exceeded revenue and earnings projections, and its cloud division, Amazon Web Services, generated $33 billion in revenue, outperforming expectations of $32.42 billion.
Recently, Amazon announced it would eliminate about 14,000 jobs, a move intended to boost efficiency. However, the company clarified that the focus was more on culture than on cost-cutting. With approximately 1.5 million employees last year, this reduction is relatively minor for such a large tech entity.
There was a time when investors had to pay a hefty premium for Amazon stock, but as earnings have risen, so too has the stock price, leading to a more attractive valuation now. Examining the price-to-earnings ratio (P/E) over the last decade shows this trend.
Currently, Amazon’s P/E ratio stands at 34, higher than the S&P 500 average of 26, but the premium isn’t as extreme as it once was. This might present an opportunity for those looking to invest before prices rise even further.
Amazon is a robust, growing company positioned to capitalize on the advantages of AI. This stock may be worth considering as a long-term investment, especially as the market seems to have recently overlooked it. Amazon is exploring multiple growth areas, including healthcare, groceries, and AI, which could significantly expand its reach in the future.
Buying Amazon stock now could be a decision you might appreciate down the line.
However, it’s important to consider these factors before jumping in:
Our analysts have identified what they regard as the top 10 stocks to buy, and interestingly, Amazon doesn’t make the cut. These selections could yield considerable returns in the coming years.
The list also highlights past recommendations like Netflix and Nvidia, which have delivered substantial returns for early investors. It’s noteworthy that the total average return of our stock advisor team has outperformed the S&P 500 significantly.
So, if you’re thinking about expanding your investment portfolio, keep an eye on Amazon while also considering some of those other recommended stocks.
