After a challenging start to 2024, Amazon.com Inc. is set to rebound, with analysts predicting a return to record high stock prices not seen in over two years. A staggering 97% of analysts tracked by Bloomberg recommend the tech giant’s shares, with major financial institutions such as Bank of America Corp., Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., and JPMorgan Chase & Co. naming it their top e-commerce or internet stock for 2024. Additionally, Oppenheimer and Roth MKM have crowned it their favorite large-cap choice.
Despite a remarkable 81% surge in the previous year—its highest since 2015—Amazon faced a slight setback during last week’s market declines, though it fared better than Apple Inc. The bullish consensus is attributed to high confidence in Amazon’s profit outlook, fueled in part by AI tailwinds. The average analyst price target suggests a potential 26% upside, bringing Amazon close to its all-time closing high in July 2021.
Andrew Slimmon of Morgan Stanley Investment Management believes that Amazon is poised to breach its previous high in the coming year, citing the stock’s relative affordability, beating of financial forecasts, and rising consensus estimates as key indicators of a bullish market.
Notably, Amazon stands out among the so-called Magnificent Seven, having gone the longest without posting a record, in contrast to Apple, Microsoft Corp., and Nvidia. However, analysts remain optimistic about Amazon’s growth trends and improving margins, especially as the company reaps the benefits from investments made during the pandemic. The role of artificial intelligence in boosting demand for its cloud business is also anticipated.
Over the past three months, consensus expectations for Amazon’s net 2024 earnings have risen by 17%, reflecting
continued optimism. While the stock experienced a 4.4% drop, one of the steepest among megacaps, in January, analysts highlight various reasons for recommending Amazon.
Better growth trends, improving margins, and the advantageous outcomes from pandemic-related investments have contributed to the positive sentiment. The robust growth in earnings and sales, particularly in its cloud business, demonstrated in Amazon’s October 2023 results, has further fueled confidence in the company’s financial performance.
The improving profit picture has also enhanced Amazon’s appeal from a valuation perspective. Trading at 32 times estimated earnings, the stock, while above the Nasdaq 100 Index multiple of 23.9, remains below Amazon’s 10-year average of 57. Valuation is highlighted as a selling point by Needham & Co., which named Amazon as its second-favorite among the former FAANG group of companies for 2024.
Analyst Laura Martin of Needham & Co. emphasizes that investors are essentially getting Amazon’s core e-commerce business for free. The favorable valuation positions Amazon as an attractive option for investors seeking value.
Amazon consistently maintains its status as a top pick among analysts. Goldman Sachs, Mizuho Securities, and Wells Fargo & Co. all endorsed it as a top pick at various points in 2023. Despite the long-term success for bullish investors, it’s worth noting that buy ratings don’t always translate into superior performance, with Amazon’s roughly 80% gain over the past five years being surpassed by a 150% advance in the Nasdaq 100 during the same period.
Looking ahead to 2024, Andrew Huang, a portfolio manager at Evercore Wealth Management, sees the potential for improving margins and continued cloud demand to support Amazon’s stock. However, he raises a cautionary note, suggesting that the near-unanimous bullishness could act as a contrarian indicator. If everyone anticipates another strong year following the previous rally, there is a risk of the stock facing challenges even with a slight disappointment.
As Amazon aims to reclaim its record highs, market observers will closely monitor the e-commerce and cloud giant’s performance, considering both the optimistic consensus and potential contrarian signals in the market.
