4 compelling reasons to invest in Amazon stock without delay

4 compelling reasons to invest in Amazon stock without delay

THE S&P500 recently reached a new record thanks to the continued strength of artificial intelligence and with significant help from Nvidia (NASDAQ:NVDA) the incessant rise of the title. Nvidia now represents 5% of the index and its market capitalization has surpassed the $2 trillion mark, making it worth more than $2 trillion. Amazon (NASDAQ:AMZN) for the first time, as shown below.

4 compelling reasons to invest in Amazon stock without delay

AMZN Market Cap Chart

Nvidia could continue to charge higher. It’s a great company (even if its stock is expensive). But investors shouldn’t overlook Amazon. Here are my top four reasons why Amazon stock is worth buying like there’s no tomorrow.

1. AWS is experiencing a resurgence

Last year, Amazon Web Services (AWS) growth slowed to 13%, following growth of 29% in 2022 and 37% in 2021. Revenue eclipsed $90 billion for the year, but some have speculated that the golden age of cloud computing the growth was over. This is premature and I expect growth to accelerate this year.

Declining data usage budgets have been a major hurdle in 2023. Businesses have been leaning into a recession that never happened, and Amazon has been actively helping customers reduce their data usage costs. Budgets are expected to be relaxed this year as fears of a recession ease. As this headwind fades, a new tailwind appears. Much of AWS’s sales are usage-based (much like a utility), so the rise of generative artificial intelligence (AI) software is expected to drive growth due to massive data requirements.

Investors and analysts will be watching AWS closely this year. A resurgence in growth could be a catalyst for the stock.

2. Amazon’s free cash flow is back

The economic recovery at the height of the pandemic pushed Amazon’s free cash flow (the amount of money left after paying for expenses and capital assets) to record levels, but multiple challenges caused it to plummet. 2022. There have been snarls at ports, a shortage of workers, and record inflation, all of which have led to rising costs.

AWS has also been a victim of its own success. The massive growth required massive investments in equipment (CapEx). Amazon spent a total of $125 billion on CapEx in 2021 and 2022, compared to $57 billion in 2020 and 2021. That’s a ton of money, even for Amazon.

These challenges resolved themselves in 2023 and free cash flow came back strong, as you can see below.

AMZN Free Cash Flow ChartAMZN Free Cash Flow Chart

AMZN Free Cash Flow Chart

Amazon will surely use this cash to invest in growth, but it could also implement a stock buyback program if it chooses.

3. Amazon’s advertising segment impresses

One of Amazon’s fastest-growing revenue streams is online revenue, which includes product placement, pay-per-click, and video. Advertisers are eager to buy these spots because they know the ads are reaching customers who are actively looking to buy. If you’re like me, you rarely scroll past the first page and sellers know it. Advertising sales have exploded from $13 billion in 2019 to $46 billion in 2023.

It was the first time that ad sales exceeded Prime subscription sales ($47 billion versus $40 billion). The segment is also expected to benefit from easing budgets in 2024. This is another great and growing revenue stream for Amazon.

4. Consumer confidence is on the rise

You can count me among those who thought that rising interest rates and slowing economic stimulus would reduce consumer spending. But there are few signs that consumers are backing down. In fact, consumer confidence, widely considered the leading indicator of consumer spending, is steadily increasing, as shown in the chart below.

US Consumer Sentiment Index ChartUS Consumer Sentiment Index Chart

US Consumer Sentiment Index Chart

That figure remains below pre-pandemic levels, but it has climbed impressively as inflation falls. This is great news because consumer spending is critical to Amazon’s e-commerce business. Speaking of inflation, it fell to 3.2%. This shows that the Federal Reserve’s interest rate hikes are keeping inflation in check and the economy is continuing to grow. We’re not quite out of the woods yet, but so far, so good.

Amazon stock has risen significantly over the last year, but it trades at a discount to its 5-year averages based on sales and operating cash flow. The above tailwinds make it a great long-term investment.

Should you invest $1,000 in Amazon right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bradley Guichard has positions on Amazon and Nvidia. The Motley Fool holds positions and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.

4 Reasons to Buy Amazon Stock Like There’s No Tomorrow was originally published by The Motley Fool

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