Amazon (NASDAQ:AMZN) stock continues to perform well in 2024. Through its AI investments, shares are now priced at $180, up 20% on the year. Analysts are pricing in a consensus move toward $230 per share, which implies more than 27% upside from current levels.
Much of this recent move has been tied to the company’s AI-related endeavors. Amazon recently injected $2.75 billion into AI startup Anthropic, totaling $4 billion, its most significant external investment.
Anthropic will reciprocate by spending $4 billion on Amazon’s Cloud over five years. Amazon plans a $150 billion data center investment over ten years, bolstering its cloud dominance. Such substantial commitments suggest a promising 2024 as Amazon accelerates its AI ambitions.
Earnings and AMZN Stock
Experts have been increasing their earnings estimates for the e-commerce behemoth in March by 0.5% to $4.08. This upgrade reflects strong confidence and optimism from experts, who suggest Amazon’s margins could improve further. As a result of these raised forecasts, the stock climbed a significant 1.2%.
Notably, more than fifteen analysts have changed their estimates positively for AMZN stock over the past two months, with analysts now expecting an additional 41 cents in earnings per share, to $4.08.
This upgrade trajectory has been strong, and has transcended earnings predictions.
I tend to agree with analysts about Amazon’s earnings potential moving forward. Yes, the company continues to invest heavily into its core business. But the company’s very profitable cloud and AI-related investments should pay off sooner than expected. If they do, these upgrades could turn out to be light.
Robust Free Cash Flow
Despite impressive Q1 results, AMZN stock has held steady since the beginning of February. However, with a strong free cash flow outlook, I think this stock is potentially undervalued by more than a third.
That is, if current valuation multiples hold, and the company continues to grow its free cash flow at above-market-estimates.
I think that’s possible. The company’s free cash flow of $36.8 billion is astounding, particularly when one considers the company’s total revenue of $574.8 billion.
If the company continues to grow free cash flow as expected, and margins improve, this number could easily double in the years to come. For those who use free cash flow metrics to base their valuation of AMZN stock, that’s a good thing.
AI, Advertising, Cloud-Computing – You Name It
Being the world’s current top cloud provider, Amazon Web Services now holds an impressive 31% of the cloud market.
Despite slower sales growth because of inflation, AWS sustained double-digit growth and forged partnerships with key companies like Amgen and Salesforce. AWS expanded its AI services, leading the generative AI movement.
Its advertising segment, the company’s fastest-growing division, expanded by 27% in Q4, attracting advertisers with its vast customer base.
Leveraging advanced AI, Amazon optimized ad targeting, enhancing conversion rates in a high-margin business poised for sustained growth.
With AI integration across sectors and expansion into healthcare and streaming, Amazon positions itself for future success.
AMZN Stock Remains a Buy
Amazon stands as a stalwart in a number of sectors, and is moving past e-commerce and cloud computing into other high-growth markets driven by AI integrations. The company’s status as a blue chip stock isn’t going away anytime soon.
If the company can continue to improve its fundamentals, its valuation will follow. I think analysts are spot on with their projections of Amazon’s future performance, and I actually think more upside is possible from current levels.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
