After gaining by 81% last year, less stunning returns await Amazon (NASDAQ:AMZN) stock in 2024. Still, wouldn’t say that upside this year is insignificant. The company’s shares have significant upside potential. Yes, compared to most of the six other stocks that make up the “Magnificent Seven,” AMZN sports a fairly-rich valuation (57.3 times forward earnings).
A high valuation means high expectations. Not to mention, high stakes, as any sort of results that fall short could have a tremendous negative impact on stock price performance. But in the case of Amazon, there’s no need to worry about any hiccups, fumbles, or stumbles, as I’ll explain below.
AMZN Stock and its Many Revenue Growth Catalysts
In early February, Amazon should release its results for the December quarter. Reports from that time suggest that the company’s online retail division had a very merry holiday shopping season, but make no mistake.
It’s not as if a successful quarter for the company hinges entirely on how its most famous division fared during the busiest shopping time of the year. A successful holiday season will, of course, play a role, but several other growth catalysts are currently playing out. For instance, continued strong growth from Amazon’s AWS cloud computing unit.
Last quarter, this unit reported year-over-year revenue growth of 12.3% year-over-year, a slight increase from the YoY cloud revenue growth reported in the preceding quarter (12.2%). While not for certain, Q3 could have marked the start of a top-line growth resurgence for this unit.
Amazon’s digital advertising business is another segment poised to move the growth needle. Ad sales rose 26% during Q3. Higher levels of ad growth likely lie ahead. Later this month, Amazon will roll out video ads on its Prime streaming service. This could generate an additional $5 billion in annual revenue.
Don’t Forget About Amazon’s Burgeoning Bottom Line
Continued above-average levels of revenue growth is one thing, but with a continued run-up in price for AMZN stock and its peers perhaps contingent on strong quarterly earnings, all eyes will be on the bottom line next month and in subsequent earnings releases.
Fortunately, much like with revenue growth, Amazon can keep “crushing it” with earnings growth as well, to an even greater extent no less.
As I have pointed out previously, Andy Jassy, founder Jeff Bezos’ successor in the Amazon CEO role, has been successful at increasing efficiency and maximizing profitability at the company.
This may explain how Amazon’s net income surged by more than threefold during Q3 2023. Jassy and his team are still identifying areas ripe for cost improvement.
A prime example is with the recent layoffs at Amazon’s entertainment division. That’s not all. Thanks to a high level of operating leverage, incremental retail and cloud computing growth could produce outsized incremental earnings growth.
Hence, a lot points to Amazon living up to current sell-side consensus on 2024 earnings growth (around 32.5%). That’s a level of growth sufficient to drive additional gains for shares.
Bottom Line: Buy, as the Rebound Gains Momentum
While changes in interest rate policy may facilitate it, Amazon shares may not have much room for multiple expansion. However, sustaining earnings growth north of 30% is likely to keep shares at or near their current valuation.
In short, that’s why another strong year (double-digit returns) isn’t out of the question for AMZN. Gains of 30%, or even higher, are well within reach. That said, while these gains won’t arrive all at the same time, it may prove profitable to be early to the party.
After a rough start to 2024, AMZN stock is bouncing back, with the stock in recent days climbing towards its 52-week high. With this in mind, now may be the time to add this big tech blue-chip to your portfolio.
AMZN stock earns an A rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
