Amazon’s stock price (NASDAQ: AMZN) has rapidly shot up over 20% this week after one Wall Street firm made a surprise u-turn and named it their “Best Idea for 2024.” But should investors take this as a clear sign to buy Amazon stock right now while it’s still cheap?
On Tuesday, shares of the e-commerce giant climbed as high as 2.6%, closing 1.2% higher by the end of trading. This sudden boost came after analysts at Bernstein kept an “outperform” (buy) rating on Amazon stock and set a $175 price target – a 21% upside from Monday’s close.
Just six months ago, the same analysts urged Amazon in an open letter to get “back to basics” and stop spreading itself thin across too many projects. So what changed their minds and sparked this abrupt vote of confidence?
The AWS Profit Engine Could Be Revving Up
While Bernstein didn’t give much commentary behind their call, they did say they are increasing 2024 earnings estimates specifically for Amazon Web Services (AWS) – Amazon’s cloud computing division.
The analysts believe AWS will show “margin strength and fixed-cost leverage” next year. In other words, Amazon is poised to squeeze more profits out of every dollar of cloud revenue thanks to AWS’s operating leverage.
AWS has vastly outpaced growth of Amazon’s overall business in recent years. Cloud services grew 27% year-over-year in the latest quarter, compared to just 15% overall revenue growth.
As the clear market leader, AWS also makes up all the operating income for Amazon right now. More profitability from AWS could therefore have an outsized impact on overall earnings.
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So Is It Actually Time to Buy AMZN Stock?
It’s telling that even after this sudden 20% pop, Bernstein still sees 21% further upside in the share price.
At around 2 times forward sales, Amazon stock also looks historically cheap – especially for a company averaging 25% sales growth annually.
Yet bargain metrics and analyst optimism doesn’t guarantee Amazon will beat the market. Bernstein itself admits management is juggling too many long-term ambitions that may never pay off.
Still – for investors who can stomach the volatility and take a 5-10 year view – now could be an opportune time to start a position.
Rather than trade the latest Wall Street flip-flops, the most successful Amazon shareholders have focused on the long runways for growth in e-commerce, cloud services and digital advertising. These core business empires aren’t going anywhere no matter what analysts are saying this quarter.
Over the next decade, Amazon still has potential to 10x its profits. But is Wall Street undisciplined focus on short-term noise creating a temporary chance for investors to grab shares at a once-in-a-generation bargain?