Amazon shares are poised to resume their gains after a rough start to 2024, putting the stock on track for a long-awaited return to record high levels posted more than two years ago.
That, at least, is the view among analysts, with some 97% of those tracked by Bloomberg recommending the cloud-computing and e-commerce giant’s shares. Bank of America, Citigroup, Deutsche Bank, Goldman Sachs Group and JPMorgan Chase & Co. are among firms naming it their top e-commerce or internet stock for 2024, while Oppenheimer and Roth MKM crowned it their favorite large-cap choice.
It’s the kind of bullish consensus that might raise alarm bells for some contrarians, especially after the shares surged 81% last year, the most since 2015. The stock was among the hardest hit of the big tech firms in last week’s declines, although it fared better than Apple. Amazon shares rose about 1% on Monday.
Confidence is high in Amazon’s profit outlook, partly because of AI tailwinds. The average analyst price target suggests upside of roughly 25%, which would return Amazon close to its all-time closing high from July 2021. Among megacaps, only Nvidia boasts a better return potential, as the Street sees it.
“I think this year you’ll get Amazon breaching its previous high,” said Andrew Slimmon, who holds the shares in portfolios he oversees at Morgan Stanley Investment Management. “The stock is not expensive relative to its history, it is beating numbers, and consensus estimates are rising. That’s a recipe for a bull market.”
Amazon has gone the longest among the so-called Magnificent Seven without posting a record, in contrast to Apple, Microsoft, and Nvidia, all of which set new highs last year. The seven largest stocks in the S&P 500 Index by market value — a group that also includes Google parent Alphabet, Tesla and Facebook owner Meta Platforms, have mostly faltered in January, after driving the market’s strength last year. Amazon’s 3.3% drop is among the steepest of the group.
Analysts recommend Amazon for a slew of reasons, but most cite better growth trends and improving margins, especially as the company reaps the benefit from investments it made during the pandemic. Artificial intelligence is also expected to lift demand for its cloud business.
Consensus expectations for Amazon’s net 2024 earnings have risen 18% over the past three months, according to data compiled by Bloomberg, even as the view for revenue has held flat. Amazon’s most recent results, in October, showed robust growth in both earnings and sales, in particular its cloud business.
Valuation appeal
The improving profit picture has helped boost Amazon’s appeal on a valuation basis. The stock trades at 32 times estimated earnings, and while that’s above the multiple of 23.9 for the Nasdaq 100 Index, it’s well below Amazon’s 10-year average of 57.
Needham & Co. touted valuation as a selling point. The firm named Amazon its second-favorite — after Alphabet — for 2024 among the former FAANG group of companies, which also include Meta, Apple and Netflix Inc.
Its analysis “concludes that investors are getting AMZN’s core e-commerce business for free,” analyst Laura Martin wrote last month.
Amazon is a perennial top pick for analysts. Goldman Sachs, Mizuho Securities, and Wells Fargo all named it as such at various points in 2023. While those bulls have been rewarded over the long-term, buy ratings don’t necessarily translate into superior performance: Amazon’s roughly 80% gain over the past five years compares with a 150% advance in the Nasdaq 100 for the same period.
Andrew Huang, a portfolio manager at Evercore Wealth Management, is among those expecting improving margins and cloud demand to support the stock in 2024, while a low valuation relative to its history diminishes downside risk.
However, he said, the near-unanimous bullishness could be a contrarian indicator.
“If everyone is expecting another good year after last year’s rally, that could mean it is a time to trim your position, because the stock could take a hit on even a slight disappointment,” he said.