Amazon (NASDAQ:AMZN) is a worldwide phenomenon. That much is something few can argue about. In the past three years, AMZN stock is up 164%, and that includes all the hiccups and rallies. That’s nearly 54% annual gains. And if you go back even further, that growth trend continues.
It’s this regularity of outsized performance that keeps AMZN stock in the portfolios of all the major hedge funds, mutual funds and institutional portfolios.
But this universal love wasn’t always there. Historically, Amazon stock always got a sideways glance from big investors. The company would (and still does) pump most of its profits back into growth projects — entertainment, groceries, cloud storage, supply chain management, etc. — rather than banking some for a rainy day or giving it back to investors as a dividend.
That is what traditional companies have done. And when AMZN started growing, it was assumed it would do the same. It didn’t.
Every quarter analysts waited for results and would trade the stock for every tick up and down in its earnings and revenue, never quite sure whether to buy in deeper or run far, far away.
But after a number of years, and especially after its Amazon Web Services started printing money, analysts got on the bull train for the long run. AWS launched in 2006, and is now the world’s largest cloud provider.
Last year, AWS was responsible for 58% of AMZN’s operating income. The division generates about $26 billion, a 45% increase from 2017. Given that margins are around 30%, that’s a lot of cash that gets dumped back into new products and services.
Its moves into artificial intelligence (AI) via its Alexa platform is a good illustration on the big-thinking that powers AMZN stock.
These devices are compelling on their own and are beginning to power many partnerships with delivery services, subscription services and the like. But AMZN sees beyond that. The company has partnered with a builder in Southern California that is currently doing a pilot project with AMZN to build smart houses powered — and protected — by AMZN AI.
Also, coincidentally, Amazon is starting to sell DIY houses on Amazon.com for $20,000. Free shipping of course. And you can bet that in coming iterations, there will be pre-wired Alexa-friendly houses in the mix.
As for its retail operations, there may some issues as the trade war heats up, which means there will be selling now in anticipation of a quarter or two of earnings disappointments. But that has never stopped AMZN in the past.
Yes, there may be some turmoil for AMZN stock near term, but that just makes it a better buy long term.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.