Despite a slowdown in retail sales growth, Amazon (NASDAQ:AMZN) stock continues to rise. With an 80% gain in 2023 and a 9% increase since the start of the new year, the e-commerce giant is proving its critics wrong. Although the stock is still below its 2021 all-time high, it has made a steady recovery after depreciating by over 50%. Investors may be hesitant to buy now, but here are three reasons why Amazon might still be a good addition to your portfolio.
Firstly, Amazon’s retail sales footprint is expanding. While the growth may not be as explosive as in previous years, North American sales were up 13% in 2022 and are currently running 11% higher in 2023. International sales, which were down 8% two years ago, have also seen a 9% increase this year. Considering that Amazon generated $466 billion in trailing retail sales, achieving double-digit growth at such a large scale is no small feat. Additionally, Amazon has returned to retail profitability, with the North American segment posting $4.3 billion in operating income and losses in the international segment narrowing to just $95 million. The company’s cost-cutting measures have had a positive impact and have boosted returns. Furthermore, Amazon’s free cash flow has turned around from a $16.9 billion use of cash in 2022 to a positive $16.9 billion.
Secondly, Amazon Web Services (AWS) has been a major contributor to the company’s profitability. While AWS profit slipped slightly year over year and sales growth was slower compared to 2022, it still produced $17.5 billion in operating income over the first three quarters of 2023, accounting for 74% of the total. Although AWS faces competition from Microsoft’s Azure and Alphabet’s Google Cloud services, Amazon remains the market share leader in cloud infrastructure. The company is reportedly overhauling the segment to reignite sales growth. Despite the challenges, Amazon believes its rivals are starting from a smaller base and are not as transparent about their business.
Lastly, artificial intelligence (AI) is a key factor in Amazon’s future success. The company has integrated AI throughout its operations, using it to improve product recommendations, assist third-party sellers in writing better product descriptions, and enhance the effectiveness of ads. This has resulted in a booming digital advertising business, with revenue surging 26% higher to over $12 billion in the third quarter. Insider Intelligence predicts that Amazon will control a 15% share of the U.S. digital ad market by 2025, just behind Meta Platforms and Google. Additionally, Amazon offers a suite of AI tools for enterprise customers on AWS, further solidifying its position in the AI space.
In conclusion, while Amazon’s stock may not be as cheap as it was at the beginning of 2023, it still presents an opportunity to own a premier business at a reasonable price. Despite Wall Street’s skepticism, Amazon continues to innovate and grow. With its expanding retail sales footprint, dominance in cloud infrastructure, and integration of AI, Amazon remains a compelling investment for those with a long-term mindset.
Disclosure: The author of this article does not hold any positions in the securities mentioned. The opinions expressed in this article are solely those of the author.