Is Amazon Set to Achieve Record Stock Prices in 2024?

In a year that kicked off with some turbulence for the markets, Amazon.com Inc. is setting itself up for a triumphant return to record-high stock prices. Analysts, with an overwhelming consensus, are betting on Amazon's resurgence, with nearly 97% of them favoring the cloud-computing and e-commerce juggernaut. Big names like Bank of America Corp., Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., and JPMorgan Chase & Co. are all placing their bets on Amazon as the top e-commerce or internet stock for 2024. Additionally, Oppenheimer and Roth MKM have crowned Amazon as their favorite large-cap choice.

But is this bullish consensus cause for concern, especially after Amazon's astounding 81% surge in the previous year? This article dives into the reasons behind Wall Street's optimism, the factors driving Amazon's potential resurgence, and what investors can expect from the tech giant in 2024.

Why Wall Street Is Bullish on Amazon

Confidence in Profit Outlook

Analysts are showing immense confidence in Amazon's profit outlook, thanks in part to the tailwinds provided by artificial intelligence (AI). The average analyst price target suggests a potential upside of around 25%, which would bring Amazon's stock price close to its all-time high last seen in July 2021.

Andrew Slimmon, who manages portfolios at Morgan Stanley Investment Management, believes that Amazon is poised to surpass its previous high this year. He points out that the stock is not overvalued relative to its historical performance, consistently outperforming earnings expectations, and benefiting from rising consensus estimates – a recipe for a bull market.

Breaking the Record Drought

Amazon has endured the longest record drought among the so-called Magnificent Seven, a group of the seven largest stocks in the S&P 500 by market value. This drought stands in contrast to companies like Apple, <a class="tvreplink" target="_blank" href="https://www.tradingview.com/chart/?symbol=Nasdaq%3AMSFT">Microsoft, and Nvidia, which achieved new highs in the previous year. While most of the Magnificent Seven have stumbled in January, with Amazon experiencing a 3.3% drop, analysts see a turnaround on the horizon.

Better Growth Trends and Margins

Analysts cite several reasons for their bullish stance on Amazon. Notably, they highlight improving growth trends and expanding profit margins, particularly as Amazon reaps the benefits of investments made during the pandemic. The rise of artificial intelligence is also expected to boost demand for Amazon's cloud business.

Valuation Appeal and Contrarian Concerns

Attractive Valuation

Amazon's improving profit outlook has significantly enhanced its appeal from a valuation perspective. While the stock currently trades at 32 times estimated earnings, which is above the multiple of 23.9 for the Nasdaq 100 Index, it remains well below Amazon's 10-year average of 57.

Needham & Co. sees Amazon's valuation as a selling point, suggesting that investors are essentially getting Amazon's core e-commerce business for free.

Contrarian Indicator

Despite the overwhelming bullish sentiment, some investors are wary of the near-unanimous optimism surrounding Amazon. Andrew Huang, a portfolio manager at Evercore Wealth Management, suggests that when everyone expects another strong year following a rally, it may be prudent to exercise caution. Even a slight disappointment could potentially impact the stock negatively.

In conclusion, Amazon's stock is poised for a potential comeback to record-high levels in 2024, driven by factors such as confidence in its profit outlook, better growth trends, improving margins, and attractive valuations. However, investors should remain vigilant, as the unanimous bullishness in the market could serve as a contrarian indicator. While Wall Street is optimistic, it's essential to monitor Amazon's performance closely throughout the year.