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 AMZN 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, wondering if Amazon has run out of steam or if there is still more growth ahead. Here are three reasons why Amazon might still be a good addition to your portfolio.
Reason No. 1: E-commerce and AMZN Stock
While Amazon’s retail sales growth may not be as explosive as in previous years, it is still expanding its footprint. 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. Generating double-digit growth at such a large scale is no easy feat, especially considering that Amazon produced $466 billion in trailing retail sales. 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. Cost-cutting measures implemented by the company have had a positive impact on returns, and free cash flow has turned around from a $16.9 billion use of cash in 2022 to a positive $16.9 billion.
Reason No. 2: AMZN Stock and the Cloud
Amazon Web Services (AWS) has long been a major contributor to Amazon’s profitability. While the e-commerce business is now sharing more of the burden, AWS still generated $17.5 billion in operating income over the first three quarters of 2023, accounting for 74% of the total. Although AWS profit slipped slightly year over year and sales growth was slower compared to 2022, Amazon remains the market share leader in cloud infrastructure. The company is reportedly overhauling the segment to reignite sales growth. Despite facing competition from Microsoft’s Azure and Alphabet’s Google Cloud services, Amazon believes its rivals are starting from a smaller base and are not as transparent about their business.
Reason No. 3: AI is the Future
Artificial intelligence (AI) is playing a significant role in Amazon’s continued growth. The company is using AI and machine learning to enhance product recommendations, improve third-party sellers’ tools, and optimize digital advertising. Amazon’s digital advertising business has seen a 26% surge in revenue, reaching 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, trailing 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 market.
In conclusion, while AMZN stock may not be as cheap as it was at the beginning of 2023, it still presents an opportunity to invest in a premier business at a reasonable price. Despite Wall Street’s doubts, Amazon continues to innovate and grow. The company’s expansion in e-commerce, dominance in cloud infrastructure, and focus on AI make it an attractive option for long-term investors.
Disclaimer: The opinions expressed in this article are those of the writer and do not necessarily reflect the views of InvestorPlace.com. The writer does not hold any positions in the securities mentioned.
Source: InvestorPlace