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This is great news for Amazon stock investors
Amazon (NASDAQ: AMZN) had a difficult 2022 as rising inflation weighed on profits, so last year the company revamped its cost structure to turn things around. And now, this year, the market giant is showing investors that they can still count on it for great growth. In the last earnings report, sales increased by double digits and net profit more than tripled.
This is due to Amazon’s efforts to increase efficiency and its continued dominance in the high-growth markets of e-commerce and cloud computing. And speaking of the cloud, this is where we will find the company’s biggest victory in the quarter. The gains here are significant because Amazon Web Services (AWS) is generally Amazon’s profit driver – so AWS’s superior performance should translate into greater profitability for the company.
Let’s take a look at this big shareholder news that Amazon delivered (excuse the pun) during its most recent earnings report…
Image source: Getty Images.
Amazon Earnings History
First, a quick summary of Amazon’s earnings history. The company increased sales and net profit to billions of dollars over time, and even doubled its fulfillment network in the early stages of the pandemic due to huge e-commerce demand. More recently, higher inflation has hurt consumer wallets and business budgets, resulting in a weakening of e-commerce and Amazon cloud sales.
But Amazon took some important steps that prepared the company for growth as the economic situation improved. Amazon revised its cost structure to favor efficiency and even changed its fulfillment model in the US from a national model to a regional one – bringing inventory closer to the consumer. This specific decision has already started to reduce Amazon’s cost of fulfillment, and the company says it’s far from over when it comes to streamlining processes.
During tough economic times, Amazon steered AWS customers toward options that helped them stay within their budgets—although this meant lower revenues for AWS in the short term, it kept those customers coming back. And today AWS is benefiting as many customers have moved out of cost reduction mode and are now deploying new projects.
Ultimately, Amazon focused its investment on cloud computing, increasing infrastructure as well as its presence in the hot field of artificial intelligence (AI). AWS is going all-in on AI, offering customers everything they need for their projects: from compute for those creating their own large language models (LLMs) to a fully managed service which gives clients access to top LLMs to customize. And Amazon also offers customers a variety of AI-powered applications across its business – from a shopping assistant on its e-commerce platform to a coding assistant through AWS.
The story continues
Amazon’s big news
Now, let’s get to the big news that Amazon reported late last month. For context, it is important to remember that, in the second quarter of last year, AWS reported a decline in operating profit. However, in the most recent quarter, AWS net sales increased 17% and operating profit soared 84%. And the big news is that AWS, which reported sales of $25 billion in the quarter, achieved an annual revenue rate of $100 billion.
This is great news for investors because it shows that Amazon’s investments in AI and technology infrastructure are paying off – and considering AWS’ role in Amazon’s overall profitability, this bodes well for the company’s profit future. Why? Because we are just at the beginning of the potential AI revolution.
The AI market, which is growing at a double-digit compound annual growth rate, is expected to reach more than $1 trillion by the end of the decade. AWS is the world’s leading cloud provider, so it is well positioned to benefit from demand for AI products and services – especially because it is well prepared, offering customers many options from budget to premium.
What does this mean for investors? That even with future earnings estimates of 41x, Amazon shares are reasonably priced today, so they’re worth buying — and if you’re already a shareholder, you’re likely to gain by holding firm as the company’s history unfolds. AI develops.
Amazon has a solid growth track record, built as its e-commerce and cloud businesses took off, but this big tech and consumer stock hasn’t yet reached the final stages of its growth story. The company’s monetization of AI is just beginning, and this, along with its continued dominance in e-commerce and cloud services, make Amazon a high-growth stock to own for the long term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adriana Cimino has positions on Amazon. The Motley Fool holds positions on and recommends Amazon. The Motley Fool has a disclosure policy.
This is great news for Amazon stock investors was originally published by The Motley Fool