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. While some investors may be hesitant to buy now, there are three reasons why Amazon still deserves a place in your portfolio.
Firstly, Amazon’s retail sales footprint is expanding. Although the growth may not be as explosive as in previous years, North American sales were up 13% in 2022 and are currently 11% higher in 2023. International sales have also seen improvement, with 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, 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) plays a significant role in the company’s profitability. While AWS profit slipped slightly year over year, it still produced $17.5 billion in operating income during the first three quarters of 2023, accounting for 74% of the total. Although AWS’s sales growth was slower compared to the previous year, Amazon remains the market share leader in cloud infrastructure. The company is reportedly overhauling the segment to reignite sales growth. Despite competition from Microsoft’s Azure and Alphabet’s Google Cloud services, Amazon believes its rivals are starting from a much smaller base and are not as transparent about their business.
Lastly, artificial intelligence (AI) is a crucial factor in Amazon’s continued success. The company has infused AI throughout its operations, using it to improve product recommendations, assist third-party sellers in writing better product descriptions, and enhance marketing efforts. This has paid off in the form of 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, placing it just behind Meta Platforms and Google.
In conclusion, while Amazon’s stock may not be as cheap as it was at the beginning of 2023, it still offers investors a chance 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, dominant position in cloud infrastructure, and integration of AI, the company shows no signs of slowing down.
Disclosure: The author of this article does not hold any positions in the securities mentioned above. The opinions expressed in this article are solely those of the author and are subject to InvestorPlace.com Publishing Guidelines.
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