Amazon Stock Is Soaring Again. 1 Reason to Buy Now (Hint: It's Not AI)


For years, Amazon (AMZN 0.09%) was known for bold risks and minimal profits as the company invested in its businesses to grow revenue and market share, building out its customer base and competitive advantages.

Under CEO Andy Jassy, who’s run the company for more than two years, Amazon has shifted from an experimental, growth-focused start-up to a more mature company ready to monetize its existing businesses and be more disciplined with its capital.

Jassy laid off roughly 28,000 corporate employees last year and shut down unprofitable projects like the Scout home delivery and Amazon Care telehealth services. Those moves helped the company deliver soaring profits in 2023, and that leverage was on display in Amazon’s fourth-quarter earnings report, out last week.

Revenue in Q4 rose 14% to $170 billion, beating the analyst consensus at $166.2 billion. The company’s growth was even across its three business segments. At its North America and international segments, which are primarily made up of e-commerce sales, revenue rose 13% and 17%, respectively. North American revenue reached $105.5 billion, while international revenue was $40.2 billion.

Amazon Web Services, the cloud infrastructure business that has been the company’s primary cash cow in recent years, reported 13% growth to $24.2 billion. That was slower than both Microsoft Azure and Google Cloud, a sign that Amazon is losing market share, but it’s still the biggest cloud infrastructure business.

On the bottom line, all three divisions delivered solid growth as well. North America’s operating income was $6.5 billion, up from a loss of $0.2 billion in the same quarter a year ago. In its international segment, the operating loss narrowed from $2.2 billion to $0.4 billion, and AWS’ operating profit improved from $5.2 billion to $7.2 billion.

Jassy explained the solid growth in e-commerce, saying, “The regionalization of our U.S. fulfillment network led to our fastest-ever delivery speeds for Prime members while also lowering our cost to serve.” 

This is the kind of operational improvement that Jassy has excelled at, and it’s no easy feat for a retailer the size of Amazon to grow revenue by 13%.

An Amazon Prime van parked in a loading dock.

Image source: Amazon.

Why Amazon stock can keep climbing

Amazon stock still looks expensive on a price-to-earnings basis and the company’s revenue growth is unlikely to accelerate significantly from where it is today.

However, its operating income in the fourth quarter soared from $2.7 billion to $13.2 billion, and its margins are likely to continue to expand because Amazon’s fastest-growing businesses are its most profitable. They are the ones that are built on the investments it made earlier, like its first-party e-commerce business and its massive logistics and fulfillment network.

For example, advertising revenue grew 27% to $14.7 billion. Amazon doesn’t report advertising profits, but that is very likely high-margin revenue. Alphabet‘s Google, for example, generates an operating margin in the 30% range from its advertising business.

Additionally, Amazon’s third-party seller services revenue grew 20% to $43.6 billion. That income represents the fees Amazon charges marketplace sellers to sell on Amazon and use its fulfillment services, so it’s also high-margin. Amazon has a lot of leverage here as it has no direct competition from a large e-commerce marketplace in many of the countries it operates in, and it benefits from the traffic it draws to its site, making its platform attractive to third-party sellers.

AWS should also see revenue growth reaccelerate as usage for running artificial intelligence (AI) models picks up, driving the need for cloud infrastructure services, but the company doesn’t need AI to be successful.

Amazon introduced a new AI shopping assistant, Rufus, and talked up other AI initiatives, but Amazon’s competitive advantages are strong enough that profits should continue to grow at a steady clip and margins should expand in any case. And that should make the stock a winner again in 2024.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.



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