Understanding the Market | Why is Amazon's stock price expected to reach a new all-time high?

Zhitong App has learned that, according to market analysts, Amazon's stock price is expected to recover and potentially reach a new all-time high after a challenging start in 2024.

Analyst data tracked by the media shows that approximately 97% of analysts recommend buying Amazon's stock. Companies such as Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and JPMorgan Chase have named it as one of the hottest e-commerce or internet stocks for 2024, while investment banks Oppenheimer and Roth MKM have ranked it as one of the most popular large-cap stocks.

This bullish consensus may raise concerns for contrarian investors, especially after the stock's 81% surge last year, marking its largest increase since 2015. During last week's market downturn, Amazon was one of the large tech companies hit the hardest, although it performed better than Apple (AAPL.US). This week, Amazon saw a 3% increase on Monday.

Confidence in Amazon's profit prospects is partly driven by the positive impact of artificial intelligence. Analysts' average target price for Amazon indicates a potential 25% upside, which would bring the stock price close to its historical closing high in July 2021. According to Wall Street analysts, among large companies, only NVIDIA (NVDA.US) has shown a more promising return potential than Amazon.

Andrew Slimmon, who holds Amazon stock in his Morgan Stanley portfolio, said, "I believe Amazon will surpass its previous high this year. Compared to its historical levels, Amazon is currently not expensive, its performance has exceeded expectations, and general expectations are also rising. This is the secret of a bull market."

Among the seven giants of the US stock market (the seven largest stocks in the S&P 500 index by market capitalization), Amazon is the company that has gone the longest without setting a new all-time high. In contrast, Apple, Microsoft (MSFT.US), and NVIDIA all reached new highs last year. Alphabet, the parent company of Google (GOOG.US), Tesla (TSLA.US), and Meta, the parent company of Facebook (META.US), have mostly underperformed in January after driving the market's strength last year.

There are various reasons why analysts recommend Amazon, but most of them believe that the company will continue to experience strong growth and improving profit margins, especially benefiting from investments made during the pandemic. Additionally, artificial intelligence is expected to boost demand for its cloud business.

According to data compiled by Bloomberg, while market expectations for Amazon's 2024 revenue have remained steady over the past three months, consensus estimates for net profit have increased by 18%. Its financial report released in October showed strong growth in sales and profits, particularly in its cloud business.Appealing Valuation

The improvement in profitability contributes to the appealing valuation of Amazon. The stock currently has a P/E ratio of 32, which is higher than the Nasdaq 100 index's 23.9, but much lower than Amazon's 10-year average of 57.

Investment firm Needham sees valuation as a selling point and ranks Amazon as the second most popular company among FAANG group companies by 2024, only behind Alphabet, and ahead of Meta, Apple, and Netflix.

Amazon has always been the top choice for analysts. While bullish firms like Goldman Sachs, Mizuho Securities, and Wells Fargo have been rewarded in the long run, a buy rating doesn't always translate into outstanding performance: Amazon's growth in the past five years is about 80%, while the Nasdaq 100 index has grown by 150% during the same period.

Andrew Huang, a portfolio manager at boutique investment bank Evercore, expects improved profit margins and demand for cloud computing to support Amazon's stock price in 2024, while the relatively low valuation compared to its history will reduce downside risks.

However, he also points out that a consensus bullish view may be a contrarian indicator. He said, "If everyone is expecting another good year after last year's rally, it may be time to reduce positions, as any slight disappointment could impact the stock price."