ETFs
ETFs are in the spotlight as Amazon joins the $2 trillion club for the first time
Amazon reached a key milestone on June 26, 2024, after surpassing the market capitalization of $2 trillion. This places the tech giant among a select group globally valued at this level, including Microsoft MSFT, Apple AAPL, Nvidia NVDA and Alphabet GOOGL. Amazon stock gained 3.9% on June 26 to a share-adjusted record price of $193.61. This rise was driven by a broader technology rally led by AI.
Amazon’s success highlights ETFs like ProShares Online Retail ETF ONLN (24.3% weighting invested in AMZN), SPDR Select Sector Consumer Discretionary Fund XLY (22.75% weight), Fidelity MSCI Consumer Discretionary Index ETF FDIS (22.50% weight) and Vanguard Consumer Discretionary ETF VCR (21.89% weight).
Behind Amazon’s Operations and Finances
Amazon reported its most profitable first quarter ever, with net profit of $10.4 billion, marking a significant improvement over previous years. The company’s shares have benefited from increased investor interest in AI, particularly through its Amazon Web Services (AWS). AWS revenue (18% of sales) increased 17% year over year in the first quarter to $25.04 billion, surpassing the consensus mark of $24.3 billion.
AWS’ high adoption rate contributes to the enterprise’s cloud dominance. AWS is gaining momentum with customers including Boeing, Geisinger, British Telecom, Jefferies, Meta, Roche, adidas, NXP Semiconductors, National Hockey League, ViacomCBS, Boom Supersonic, MercadoLibre, Western Union, Klarna, Old Mutual, Adobe and Spotify, to name a few. Alexa’s improved skills, along with a strong offering of smart home products, act as a tailwind.
The company is gaining significant momentum with its Prime services, thanks to lightning-fast delivery options and a robust content portfolio. Amazon saw 11% growth in subscription service sales, which totaled $10.72 billion in the first quarter. This figure exceeds the consensus mark of $10.68 billion. Strong advertising activity also makes a positive contribution.
Growing capabilities in grocery, pharmacy, fintech, healthcare and autonomous driving are other bright spots. Apart from being one of the largest e-commerce companies in the world, Amazon’s growing footprint in offline operations deserves special mention. AMZN saw year-over-year growth of 6% in physical store sales, which totaled $5.2 billion in the first quarter. This figure exceeded the consensus mark of $5.1 billion.
Cash-rich Amazon invests in AI: dividends in cards?
Amazon’s free cash flow soared to $50 billion on a trailing 12-month basis, while operating cash flow soared 82% over the same period to $99.1 billion. Amazon currently has a price to free cash flow ratio of 41.2.
The story continues
Since it’s a high-growth stock, Amazon has invested a lot of money in AI-based initiatives and fintech. The main focus has been on AI models and a chatbot called Q, which Amazon offers to businesses using its AWS cloud computing services.
Amazon has already invested $4 billion in San Francisco-based AI company Anthropic. Additionally, Amazon manufactures and designs its own AI chips to ensure a seamless supply of semiconductors. However, with many of its Magnificent Seven peers paying dividends recently, Amazon could also make this move.
Can AMZN Stock Rise Further?
Amazon stock has an optimistic VGM score of ‘A’. The stock comes from the Zacks Internet – Commerce industry, which currently ranks in the top 30% of around 250 industries. Because it ranks in the top half of all Zacks Ranked industries, we expect this group to outperform over the next 3 to 6 months.
Amazon stock currently trades at around 42.3 times forward earnings, which is higher than the industry average of 24.9 times. However, its valuation does not seem excessive, as its profits are growing faster than its share price.
Target price
Analysts at Bank of America raised their price target for Amazon from $210 to $220, suggesting an additional 12% upside potential, as reported on Forbes. Before reaching this milestone, the average price target for Amazon was $221.16, as of June 25, 2024 (based on short-term price targets offered by 44 analysts). Forecasts ranged from a low of $140.00 to a high of $246.00. The average price target represented an 18.69% increase from the closing price of $186.34 recorded on the same day.
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Apple Inc. (AAPL): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
SPDR ETF (XLY) for Consumer Discretionary Sectors: ETF Research Reports
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports
ProShares Online Retail ETF (ONLN): ETF Research Reports