Amazon Stock To $100?

Forbes

2 days ago

Despite considerable growth in both revenue and profits, Amazon's stock (NASDAQ: AMZN) performance has raised concerns among investors due to a mix of slowing growth in its vital cloud division, fierce competition in artificial intelligence (AI), a high valuation, and overarching economic pressures.
Over the past four years, Amazon has increased its revenue by $200 billion and $37 billion in net profit, with profits rising by 112% thanks to improving margins. However, during the same timeframe, its stock has only seen a 33% increase, and its price-to-earnings (P/E) ratio has dropped by 34%.
In 2021, Amazon's valuation multiple stood at 51 times earnings, signaling high expectations for future growth. Now, with a reduced multiple of 34x trailing earnings, investors are questioning whether this valuation remains justified, particularly as growth expectations are being moderated.
Now, we also have a contrasting scenario on Amazon Stock: Path To 2x Growth. Indeed, we believe that this wide range of upside and downside possibilities underscores a fundamental reality: AMZN is a volatile stock.
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Core Challenges and Investor Concerns
A variety of factors contribute to investor anxiety, presenting potential obstacles for Amazon's stock.
AWS has traditionally been Amazon's main source of profit, with estimated adjusted EBITDA margins around 45%, compared to 15% for its North American operations and 11% for its international businesses. Any slowdown in this segment greatly influences the company's overall profitability and investor confidence.
While Amazon's Q2 AWS growth of 18% topped analyst projections, it lagged behind the growth rates of its primary rivals, Microsoft Azure (39%) and Google Cloud (32%). This gap is a significant reason for the stock's recent slump, as investors fear that AWS is losing its competitive edge in the key cloud market. Even a notable partnership with OpenAI has not fully alleviated these worries.
The surge in AI has heightened demand for cloud services, yet some view Amazon as falling behind its competitors. Rivals like Microsoft and Google offer highly integrated AI solutions (like GPT and Gemini, respectively), which are often simpler for customers to adopt. Conversely, AWS's approach frequently necessitates greater technical expertise from developers to combine various services.
Wider economic factors present additional threats for Amazon:
Historical Performance During Downturns
Amazon's stock has shown volatility during previous market downturns, sometimes performing worse than the S&P 500 index.
The substantial 55% drawdown in 2022 indicates that a significant drop from current levels is not unusual. This history of volatility, combined with a high stock price, leads to cautious investor sentiment. See – Buy or Sell AMZN Stock – for more details.
The Verdict
To summarize, it also does not aid that AMZN stock remains expensive; it trades at nearly 34x trailing earnings. Certainly, the company's revenue has increased significantly over recent years, growing at an average rate of about 11% over the last three years (compared to 5% for the S&P 500). However, this growth might diminish rapidly if the economy worsens and if the company fails to adequately seize its share of the AI cloud market. At existing multiples, even slight disappointments could prompt a disproportionate correction in the stock, as demonstrated by its performance following its positive Q2 results.
The high valuation of AMZN stock could restrict its upside potential in the near to medium term. Alternatively, the Trefis Reinforced Value (RV) Portfolio has outperformed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices), delivering strong returns for investors. Why is this the case? The quarterly rebalanced combination of large-, mid-, and small-cap RV Portfolio stocks has provided a responsive means to capitalize on favorable market conditions while limiting losses during downturns, as detailed in RV Portfolio performance metrics.