The company just kicked off its fiscal 2024 with stellar quarterly results.
The tech market has come a long way since 2022, when macroeconomic headwinds caused a market downturn that saw the Nasdaq-100 Technology index plunge 40%. The same index has since risen 68%, driven by easing inflation and advances in budding markets like artificial intelligence (AI).
Amazon (AMZN -0.86%) has been a major growth driver in the market's recovery, with its stock up 113% since the start of 2023 after tumbling 50% the year before. The company has rallied investors with an impressive turnaround in its e-commerce business and an expanding position in AI.
The tech giant is on a promising growth path as the biggest name in online retail and as a leader in cloud computing with its platform, Amazon Web Services (AWS). Amazon continued to prove this on April 30, beating earnings estimates once again and delivering glowing results for its first quarter of 2024.
Shares of Amazon climbed 17% year to date but have shown no signs of slowing. Here are two reasons to buy Amazon stock like there's no tomorrow.
1. A promising start to 2024
Amazon shares began trending up in extended trading on April 30 after the company's successful earnings release. In Q1 2024, its revenue rose 13% year over year to $43 billion, beating Wall Street forecasts by $750 million. Additionally, earnings per share hit $0.98, versus expectations of $0.83.
The company profited from stellar growth in its retail division. Operating income in its North America segment increased 455% to $5 billion. Meanwhile, international operating income achieved $903 million, a significant improvement from the $1.2 billion in losses it reported in the year-ago quarter.
Despite Amazon's expansion into other industries, e-commerce sales still account for more than 80% of its revenue. Consequently, recent growth in its retail segment only strengthens the company's outlook.
However, the best reasons to invest in Amazon's stock are its AWS platform and advertising services. These digital-based businesses fortify the company's earnings for the long term, making it less vulnerable to macro factors. In Q1 2024, AWS revenue increased by 17% year over year, with advertising sales rising 24%.
Amazon has been a sleeping giant in digital advertising, with companies like Alphabet and Meta Platforms dominating the industry. However, the recent introduction of ads on its streaming platform Prime Video and other expansions in the sector have boosted earnings and will likely continue to do so for the foreseeable future.
2. Amazon expects artificial intelligence to bolster its cloud business over the long term
According to Grand View Research, the artificial intelligence (AI) market hit a valuation nearing $200 billion last year and is projected to expand at a compound annual growth rate of 37% through 2030. This growth trajectory will see the industry achieve close to $2 trillion in spending. As a result, Amazon's hyperfocus on expanding its role in the industry could pay off in a major way in the coming years.
Since the start of 2023, Amazon has invested heavily in AI, introducing a range of new AI tools on AWS and announcing a venture into chip development. Demand for AI services has skyrocketed over the last year, with businesses increasingly turning to cloud platforms like AWS to boost efficiency with the generative technology.
Meanwhile, AWS holds a leading 31% market share in cloud computing, with its client list boasting tech giants like Netflix, Meta Platforms, and Sony. Amazon's potent role in cloud computing could give it a leg up in AI, compared to rivals like Microsoft's Azure and Google Cloud.
In Q1 2024, AWS was responsible for 61% of Amazon's operating income, despite earning the smallest portion of revenue between its three segments. The cloud division is easily the most lucrative part of the business.
AWS revenue has slowed over the last year amid rising competition. However, the company expects cost-cutting measures to soon take effect, with AI engagement projected to boost earnings.
Data by YCharts.
Moreover, Amazon's price-to-sales (P/S) ratio is the lowest among some of its biggest cloud rivals, suggesting now could be the best time to invest. P/S is a valuation metric that divides a company's market cap by its trailing-12-month revenue. Generally, the lower the figure, the better the value.
In Amazon's case, its P/S makes it one of the best-valued stocks in the cloud market and, potentially, AI. Alongside booming e-commerce and advertising businesses, Amazon stock is a no-brainer buy right now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Netflix. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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