Amazon had a great year as corporate IT cloud spending came back and e-commerce was humming. The direction of the economy next year is the big wild card. Year-to-date performance: up 48.1% Forward price-to-earnings multiple: 36.2 versus a five-year average of 58.6 Our rating: Buy-equivalent 1 Our price target: $240 a share AMZN YTD mountain Amazon YTD ’24 look back Amazon got off to a strong start this year — reporting in February that quarterly revenue growth at its Amazon Web Services cloud unit reaccelerated. At that time, management told investors that it was just the beginning and that growth at AWS would continue to accelerate throughout the year. It did — jumping from 13.2% year-over-year growth in the fourth quarter of 2023 to 19.1% in the third quarter of 2024. At the same time, Amazon’s e-commerce business showed continued improvement thanks to the regionalization of fulfillment centers that helped accelerate delivery times and reduce the cost to serve. A fast-growing advertising business was the icing on the cake in 2024. ’25 look ahead While 2024 was about a rebound at AWS, next year is about accelerating that growth as more companies look to take advantage of cloud services and drive generative artificial intelligence adoption. Generative AI was certainly important in 2024, and Amazon has been hard at work crafting its offerings to compete with Microsoft , Alphabet , and others — but it’s not really what investors were focused on, aside from what it meant for AWS growth. In 2025, we’re hoping to see Amazon more directly monetize and benefit from the new technology — both in terms of selling solutions to customers and enhancing its own operations. Jim Cramer recently named Amazon as one of his 12 core holdings heading into 2025. E-commerce profitability at Amazon should continue as honing of its delivery operations appear to be a multiyear catalyst. The faster Amazon can deliver packages, the more people will go there first for their shopping needs — especially low-cost everyday essentials that Amazon was ramping up in 2024. That, in turn, should lead to more demand for advertising on the platform from sellers and an even more sticky Prime membership. The more value that Prime offers, the easier it is to increase membership fees by a few bucks, which amounts to hundreds of millions in revenue given the size of the subscription base. Improved growth along with increased profitability should also yield higher cash levels, which Amazon may look to use for acquisitions now that it’s widely believed that regulators are going to take a more favorable view on mergers under a second presidential administration of Donald Trump. We’re also on the lookout for further innovation in the robotics space. The timing may be uncertain, but Amazon will prove to be a big winner from robotics and automation, in general, given the ability to implement these technologies into its massive warehouses — a move that should help with efforts to further reduce the cost to serve. One possible headwind would be a slowing economy, which could force customers to once again pull back on IT spending (AWS demand) and consumer spending (e-commerce demand and advertising). However, generative AI adoption will be prioritized alongside cybersecurity and that should help blunt any slowdown in demand for AWS. As for e-commerce, we wouldn’t be shocked to see investors focus more on cost to deliver dynamics over sales — and reward Amazon for any structural declines in cost over punishing the stock for economic forces out of its control. (Jim Cramer’s Charitable Trust is long AMZN, MSFT, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Boxes lie on a conveyor belt during Cyber Monday at Amazon’s fulfillment center in Robbinsville, New Jersey, U.S., December 2, 2024.
Eduardo Munoz | Reuters
Amazon had a great year as corporate IT cloud spending came back and e-commerce was humming. The direction of the economy next year is the big wild card.