ETFs
ETFs in the spotlight as Amazon joins the $2 trillion club for the first time – June 27, 2024
Amazon reached a key milestone on June 26, 2024, after surpassing $2 trillion in market capitalization. This places the tech giant among a select group globally valued at this level, including Microsoft (Quick quote MSFTMSFT – Free report) , Apple (Quick quote AAPLAAPL – Free report) , NVIDIA (Quick quote NVDANVDA – Free report) And Alphabet (Quick quote GOOGLGOOGLE – Free report) . Amazon shares gained 3.9% on June 26 to a record high of $193.61, adjusted for the share price. The gain was helped by a broader tech rally led by AI.
Amazon’s success shines a spotlight on ETFs like ProShares Online Retail ETF (Quick quote ONLNONLN – Free report) (24.3% of the weight invested in AMZN), SPDR Select Sector Consumer Discretionary Fund (Quick quote XLYXLY – Free report) (22.75% by weight), Fidelity MSCI Consumer Discretionary ETF (FDIS Quick QuoteFDIS – Free report) (22.50% weight) and Vanguard Consumer Discretionary ETF (Quick quote from the VCRVCR – Free report) (21.89% by weight).
Behind Amazon’s Operations and Finances
Amazon reported its most profitable first quarter ever, with net income of $10.4 billion, a significant improvement over previous years. The company’s shares benefited from increased investor interest in AI, particularly through its Amazon Web Services (AWS). AWS revenue (18% of sales) rose 17% year over year in the first quarter to $25.04 billion, beating 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.
Amazon’s growing capabilities in grocery, pharmacy, fintech, healthcare, and autonomous driving are other positives. In addition to being one of the world’s largest e-commerce companies, Amazon’s growing footprint in offline operations deserves special mention. AMZN saw 6% year-over-year growth in its in-store sales to $5.2 billion in the first quarter, surpassing the consensus mark of $5.1 billion.
Cash-Rich Amazon Invests in AI: Dividends in Maps?
Amazon’s free cash flow has climbed to $50 billion over the past 12 months, while operating cash flow has jumped 82% over the same period to $99.1 billion. Amazon currently has a price-to-free cash flow ratio of 41.2.
Amazon, which is a fast-growing company, has invested huge amounts of money in AI and fintech initiatives. The main focus has been on AI models and a chatbot named Q, which Amazon provides to businesses using its AWS cloud 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 transparent supply of semiconductors. However, with many of its “Magnificent Seven” peers recently paying dividends, Amazon could also make that move.
Can AMZN Stock Rise Further?
Amazon stock shows momentum VGM score of “A”. The stock comes from Zacks Internet – Commerce Sectorwhich currently ranks in the top 30% of about 250 industries. Being ranked in the top half of all Zacks-ranked industries, we expect this group to outperform in the next 3-6 months.
Amazon stock currently trades at about 42.3 times forward earnings, which is higher than the industry average of 24.9 times. However, its valuation does not seem excessive, given that its earnings are growing faster than its share price.
Price target
Bank of America analysts raised their price target for Amazon from $210 to $220, suggesting another 12% upside potential. as quoted on Forbes. Before reaching this milestone, Amazon’s average price target was $221.16 as of June 25, 2024 (based on short-term price targets proposed by 44 analysts). Forecasts ranged from a low of $140.00 to a high of $246.00. The average price target represented an increase of 18.69% from the closing price of $186.34 recorded on the same day.