Amazon’s (NASDAQ:AMZN) stock price has been on an absolute tear this past year. Up 80% in 2023, AMZN stock appears to have overcome various short-term headwinds, with investors again focused on growth. Despite still trading more than 20% below its peak, AMZN stock may still be relatively cheap at 2.5 times next year’s sales.
If the e-commerce sector continues to stabilize and Amazon can see its growth rate accelerate in its cloud and advertising divisions, a big upside is likely possible with this mega-cap tech name. Indeed, Amazon’s next moves will determine its success with investors.
Once an online bookseller, Amazon became a global powerhouse offering diverse products, streaming, and data center services. After a 2022 setback, the company rebounded strongly in 2023. That’s a trend many expect to continue heading into 2024.
Here’s why it’s entirely possible AMZN stock makes a new all-time high this year and why it is a stock that should be in focus in Q1.
Wall Street Gives the Green Light for AMZN Stock
Of the 47 analysts surveyed by LSEG in December covering Amazon, 43 recommend it as a buy or strong buy. However, overall, Wall Street anticipates modest gains, with an average 12-month price target indicating less than 5% upside. Exceptions include Bernstein analyst Mark Shmulik, who sees Amazon as his top idea for 2024, expecting a 14% increase next year and highlighting its potential for “quality, long-term growth.”
The bullish outlook for Amazon on Wall Street seems justified. While a 30% surge (as predicted by some analysts) remains uncertain, there’s optimism for Amazon to outperform the market. With moderating inflation, robust GDP, and potential interest rate cuts in 2024, the resilient U.S. economy bodes well for Amazon. Increased consumer confidence typically leads to higher spending, benefiting the company.
Expect Amazon’s advertising revenue to surge with limited ads on Prime Video, driven by smart machine learning. Third-quarter 2023 earnings tripled year-over-year, showcasing Amazon’s profitable focus. Echoing TD Cowen, AWS benefits from the cloud shift, and generative AI promises sustained growth in 2024.
AMZN Stock Can See Big Upside in 2024
Amazon’s revenue is predicted to grow at an 11% CAGR from $514 billion in 2022 to $710 billion in 2025, potentially reaching $790 billion in 2026. If valuation multiples expand once again as interest rates are expected to decline, a significant upside could be possible over the next 12-24 months.
Amazon stands out among its peers due to its focus on automation, digitalization, and cloud services. The addition of advertising to Prime Video has excited analysts, with Wedbush recently raising its target price. Anticipated ad revenue growth is seen as a significant catalyst for Amazon in 2024 and is one I’m mainly focused on. With its leading cloud services and AI integrations, analysts expect Amazon to continue gaining revenue from competitors.
2024 Will Likely Be a Great Year for Amazon
Value investors may still balk at AMZN stock, which is priced at approximately 61 times next year’s estimated earnings. Indeed, this is one of the most expensive “Magnificent Seven” stocks and could see downside if valuations compress further. That said, given the company’s anticipated earnings growth and the potential for lower interest rates, Amazon’s valuation remains sustainable and could be considered attractive (given its historical multiples).
While not relying on multiple expansions, a rise in stock value aligned with earnings growth could yield strong returns. Projections for 2025, anticipating $3.64 per share, suggest a 44.4% increase from 2024. These forecasts may evolve based on upcoming developments, such as accelerated growth in the cloud segment or the monetization of Amazon’s AI initiatives. Thus, I think there’s a strong fundamental case to be made for Amazon, particularly if the company is able to beat earnings in the coming quarters.
On the date of publication, Chris MacDonald has a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.