Amazon Stock Analysis: Analysts Bullish on AMZN for 2024

Amazon Stock

As the first week of 2024 concluded with a pause in the nine-week winning streak for U.S. stocks, some tech giants, previously leaders in the 2023 market rally, faced scrutiny. However, amidst debates about the valuation of tech stocks, Amazon (NASDAQ:AMZN) has emerged as a top buy for 2024, gaining favor from multiple brokerages.

Five prominent brokerages, including Piper Sandler, Bank of America, D.A. Davidson, Wolfe, and Wells Fargo, collectively named Amazon their top pick for the year. This endorsement was further echoed by other notable firms such as JPMorgan, Evercore ISI, Citi, TD Cowen, and Bernstein. In contrast to the cautious outlook for Apple (NASDAQ:AAPL), which received two downgrades in a week, Amazon’s stock is being increasingly viewed as a strong buy.

Amazon Stock Price Prediction: Optimistic Outlook

Wall Street displays a bullish sentiment towards Amazon stock in 2024, reflected in a consensus rating of “Strong Buy” from analysts. Out of the 43 analysts covering the stock, 39 rate it as a “Strong Buy,” while 3 label it a “Moderate Buy.” A lone analyst suggests a “Hold” rating, and the mean target price of $177.97 stands 20% higher than current levels.

In comparison to its FAANG peers, analysts exhibit the most bullish outlook on Amazon stock for 2024, positioning it favorably against others like Netflix (NASDAQ:NFLX).

Factors Driving Wall Street’s Bullish Stance on AMZN

Advertising Revenue Growth: Analyst Justin Post from Bank of America anticipates that the growth in advertising revenues will contribute positively to Amazon’s North American margins. The introduction of an ad-supported Prime plan aligns with industry trends, potentially boosting Amazon’s advertising revenue.

Enterprise-Focused AWS: Analyst Gil Luria of D.A. Davidson expresses optimism regarding Amazon Web Services (AWS), particularly its enterprise-focused approach. While acknowledging the potential high growth rate of Microsoft’s Azure, Luria believes AWS will make substantial gains in absolute dollar terms.

Artificial Intelligence (AI) Pivot: Ken Gawrelski from Wells Fargo highlights Amazon’s pivot towards artificial intelligence (AI). He projects that enterprise AI could contribute to 7% of AWS revenues in 2024, with significant gains expected in 2025 and 2026. Additionally, Gawrelski foresees a reacceleration in AWS revenues, expecting a 17% year-over-year increase.

Margin Expansion: Analysts from Piper Sandler and Wolfe emphasize the potential for further margin expansion. Cost-cutting measures, including layoffs, have contributed to operating margin expansion, reaching 7.8% in Q3 2023—the highest since 2021. AWS margins also rose to a seven-quarter high of 30.3% in the same quarter.

Potential Upside for Amazon Stock

Despite Amazon being the second-best performing FAANG stock in 2023, with gains of 81%, analysts believe there is room for further growth. The company’s multiples, although the highest among FAANG peers are seen as justified. Factors contributing to this positive outlook include the brisk growth of Amazon’s advertising business, the potential of the business-to-business (B2B) platform Amazon Business, and ongoing efforts to enhance cost efficiency.

The company’s commitment to cost cuts and increased efficiencies, coupled with a focus on leveraging existing infrastructure, positions Amazon for continued margin expansion. With a combination of growth prospects, margin expansion, and reasonable valuation multiples, analysts foresee the potential for Amazon shares to continue their upward trajectory in 2024.

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