Sarah Travers
Amazon continues to dominate core business markets while gaining a foothold in emerging areas. With its second-quarter earnings report approaching on August 1, here are three compelling reasons why Amazon stock looks like a smart investment.
Amazon’s Ubiquity and Trust
Amazon’s widespread presence has become a staple in daily life, reshaping how people shop and consume services. The company’s ability to deliver almost anything quickly and reliably has garnered immense trust from consumers. In fact, Amazon is recognized as the most trusted institution in the U.S., surpassing even the military and the Supreme Court. This level of consumer confidence is a valuable intangible asset that significantly contributes to the company’s ongoing success.
Strong E-commerce Performance
Despite the growing focus on artificial intelligence (AI), Amazon’s core business of e-commerce remains robust. The company has maintained significant domestic sales growth, with a reported $86.3 billion in sales for Q1 2024, marking a 12% increase year-over-year. This impressive performance highlights Amazon’s dominance in the online retail space.
Amazon’s logistical capabilities are a key factor in its success. In 2023 alone, the company delivered over 4 billion orders in the U.S. on the same day or the next day. This efficiency has made Amazon the leading online retailer, controlling more of the domestic market than its next 10 competitors combined. The scale and reach of Amazon’s e-commerce operations ensure that it remains a formidable player in the industry.
AI and Cloud Infrastructure
Amazon Web Services (AWS) continues to lead the cloud computing market, holding a 31% market share. As AI technology advances, AWS is positioned to maintain its leadership by investing heavily in upgrading its infrastructure to meet the growing demands of AI applications.
Amazon’s commitment to AI is evident in its $4 billion investment in Anthropic, a generative AI company competing with OpenAI. This significant investment underscores Amazon’s strategy to innovate and build the necessary infrastructure for AI. While these investments come with risks, they also present substantial growth opportunities. Investors should monitor Amazon’s capital expenditures and their impact on future earnings, as the company navigates the evolving AI landscape.
Advertising and Streaming Growth
Amazon’s Prime Video streaming service has grown into a major player in the entertainment industry, with 200 million monthly viewers. To monetize this vast audience more effectively, Amazon introduced a tiered membership system. This allows users to choose between an ad-free premium subscription or a lower-cost option with advertisements.
This strategic move has resulted in strong revenue growth for Amazon’s advertising and streaming segments. The company reported double-digit growth in both Q1 2024 and Q4 2023, with year-over-year revenue increases of 24% and 26%, respectively. These figures demonstrate the success of Amazon’s efforts to diversify its revenue streams and capitalize on its substantial viewership base.
Amazon’s Future Growth and Profitability
Amazon’s dominance in e-commerce, strategic investments in AI and cloud infrastructure, and growth in advertising and streaming make it a compelling stock pick ahead of its August 1 earnings report. The company’s ability to innovate and adapt to changing market dynamics ensures it remains a leader across multiple sectors. Investors looking for a robust and diversified investment should consider Amazon’s stock as a promising option. As the earnings report approaches, keeping an eye on these key areas will provide insights into Amazon’s future growth and profitability.
