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 beginning of the year, the e-commerce giant is proving its critics wrong and showing that it still has plenty of potential.
While AMZN stock is still below its 2021 all-time high and experienced a significant depreciation of over 50%, Amazon has demonstrated resilience and made a steady recovery. However, some investors may be hesitant to buy in at this point. Is Amazon running out of steam or is there still more growth ahead? Here are three reasons why Amazon might still be a worthwhile addition to your portfolio.
Reason No. 1: E-commerce and AMZN Stock
Although Amazon’s retail sales growth may not be as explosive as it once was, the company’s footprint in the industry continues to expand. North American sales were up 13% in 2022 and have increased by 11% so far in 2023. International sales, which were down 8% two years ago, have rebounded with a 9% growth this year. Generating double-digit growth at such a massive scale is no small feat, especially considering that Amazon has produced $466 billion in trailing retail sales.
Furthermore, Amazon has returned to retail profitability. The North American segment posted $4.3 billion in operating income, while losses in the international segment have narrowed to just $95 million. Cost-cutting measures implemented by the company have had a positive impact and are boosting returns. Additionally, free cash flow has turned around from a $16.9 billion use of cash in 2022 to a positive $16.9 billion.
While retail is the main revenue driver for Amazon, it’s the next reason to consider buying AMZN stock that truly leads to profits.
Reason No. 2: AMZN Stock and the Cloud
Amazon Web Services (AWS) has long been a major contributor to Amazon’s profitability. Although the e-commerce business is now sharing more of the burden, AWS still produced $17.5 billion in operating income during the first three quarters of 2023, accounting for 74% of the total. While AWS’s profit slipped slightly year over year and its sales growth was slower compared to 2022, it remains the undisputed market share leader in cloud infrastructure.
Although Amazon is reportedly overhauling its cloud segment to reignite sales growth, the company argues that its rivals are starting from a much smaller base than AWS and are not as transparent about their business. An AWS spokesperson stated, “it’s impossible to compare apples to apples.”
Reason No. 3: AI is the Future
The impact of AI on Amazon’s continued success cannot be underestimated. AI is integrated into all aspects of the company’s operations. In retail, Amazon uses AI and machine learning to enhance product recommendations and provide tools for third-party sellers to improve their product descriptions and marketing efforts.
Amazon’s digital advertising business is also thriving, with revenue surging 26% to over $12 billion in the third quarter. The company now holds a 7.5% share of the global digital ad market and is expected to control a 15% share of the U.S. market by 2025, trailing only Meta Platforms and Google.
Additionally, Amazon offers a suite of AI tools for enterprise customers on AWS, including data extraction and analytics, workflow automation, and chatbot development for customer service applications.
In conclusion, while AMZN stock may not be as attractively priced as it was at the beginning of 2023, it still presents an opportunity to own a premier business at a reasonable price. Despite what Wall Street may think, Amazon continues to innovate and grow. With its expanding e-commerce footprint, dominant position in cloud infrastructure, and integration of AI throughout its operations, Amazon remains a compelling investment for those with a long-term mindset.
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