Is Amazon Stock A Buy Amid Leadership Change At AWS Cloud Business?

Amazon.com (AMZN) has started strong in 2024, returning to record share value after a downbeat 2022 that put shares in recovery mode during 2023. Following the company’s first-quarter earnings report in late April, Amazon stock analysts are bullish on the tech giant’s improving profitability and its ability to fend off challengers in the cloud-computing market.

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With a market capitalization of $1.9 trillion, Amazon is among the world’s most valuable companies. But the Seattle-based firm is facing stepped-up competition for digital sales from brick-and-mortar titans Walmart (WMT) and Target (TGT), as well as upstarts such as Temu and Shein. Meanwhile, the Amazon Web Services, or AWS, cloud business is battling Microsoft (MSFT) to be the leading cloud-platform for generative artificial intelligence. The so-called “Everything Store” operator is also staring down a major antitrust battle with the U.S. government.

So, is Amazon stock a buy? Here’s what to know about recent action from the tech giant’s AMZN stock.

Changing Leadership At AWS

Amazon’s profit-driving AWS business will soon have a new leader. The tech giant announced on May 14 that AWS Chief Executive Adam Selipsky will be replaced by Matt Garman, AWS’ current sales and marketing leader. Selipsky took leadership of AWS three years ago, after Andy Jassy was promoted from the position to succeed Jeff Bezos as the chief executive of Amazon.

Selipsky’s last day in the role will be June 3. He wrote in a note to employees that he will spend time with family before making his next career move. Garman, meanwhile, started as an intern during the summer of 2005 and was among the earliest product managers for AWS.

“Matt knows our customers and business as well as anybody in the world, and has senior leadership experience on both the product and demand generation sides,” Jassy wrote in the same letter to employees “I’m excited to see Matt and his outstanding AWS leadership team continue to invent our future — it’s still such early days in AWS.”

AWS, which rents cloud-based computing power and other services to businesses, is a key profit driver for Amazon. In 2023, AWS was responsible for two-thirds of Amazon’s $37 billion in operating income, while contributing 16% of the company’s total revenue.

The move comes as Amazon is competing to offer generative AI services to clients against Microsoft and Alphabet‘s (GOOGL) Google Cloud Platform.

“We believe AWS is reorganizing its focus back to customer demand and needs, as Gen AI products will likely be highly customized for enterprise clients,” wrote Mizuho analyst James Lee in a client note following the announcement. Lee rates Amazon stock as a buy.

Amazon Stock Eases Back From New High

Shares of Amazon traded flat following the AWS news but lost a half-percent the next day. Amazon stock reached an all time high close Thursday, May 9. That day, Amazon stock gained just under 1% to close at 189.50.

But shares mostly retreated the following week, losing 1.4% between May 13 and 17. Amazon stock has met resistance from when it trades around or above 189.

Amazon shares have formed a three-weeks tight pattern, according to MarketSurge, with a pivot point at 191.70. The stock was slightly higher in morning trading Monday, May 20.

Amazon stock last had a record close on April 11, when shares ended trading at 189.05. At the time, the milestone marked a full recovery from the company’s slump in 2022. But shares pushed lower in the weeks after as part of a broader tech pullback. Amazon fell to as low at 166.32 on April 25, before rising on a strong Q1 earnings report.

The next stock milestone for Amazon could be crossing a $2 trillion market capitalization. Only Microsoft, Apple (AAPL), Nvidia (NVDA) and Alphabet have reached a valuation above $2 trillion.

How Did Amazon Perform In Q1 2024?

Amazon stock has gained nearly 6% in the weeks since its first-quarter earnings report on April 30.

For its quarter ending with March, Amazon reported a 216% year-over-year earnings increase, to 98 cents per share, and sales up 13% at $143.3 billion. Both metrics easily beat average estimates from analysts.

Further, sales for AWS grew 17% year over year to $25 billion in the quarter. That beat consensus expectations of roughly 15% year-over-year sales growth for the closely watched business.

RBC analyst Brad Erickson wrote to clients following the report that Amazon “delivered against a high bar.”

Amazon’s AI Push

On a call with analysts, Jassy highlighted that AWS had reached a $100 billion annual revenue run rate. That includes a “multibillion-dollar” revenue run rate related to AI.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate,” Jassy told analysts.

Market analysts expect generative AI will drive companies to spend more on cloud services. That means the big three providers of Amazon, Microsoft and Google are jockeying for position to rent AI computing power to enterprises.

In March, Amazon announced that it invested an additional $2.75 billion in the AI startup Anthropic, completing a $4 billion deal with the artificial intelligence startup from late last year.

Anthropic is the developer of the chatbot Claude. Claude competes with OpenAI’s ChatGPT, which launched the generative AI craze late in 2022.

The latest quarter likely helped ease some investor concern that AWS is falling behind Microsoft – which partnered with OpenAI – for generative artificial intelligence business. Evercore ISI Mark Mahaney wrote to clients following the Q1 report that Amazon’s results “marked the first quarter since Q3:22 that AWS (total dollar) revenue growth surpassed that of Azure, which changes the cloud industry leadership narrative.”

Retail Business Boosting Profits

The profitability of Amazon’s retail business stood out to analysts following Amazon’s first-quarter earnings report.

Overall, Amazon posted $15.3 billion in operating income for the first quarter, well ahead of the $11.3 billion operating profit analysts expected, according to FactSet.

Amazon’s international retail operations posted operating income for the first time since 2021. The division swung to a $900 million operating profit compared with a $1.2 billion loss in the first quarter of 2023. Sales in the segment increased 9.6% year over year to $31.9 billion.

The firm’s North American operations, meanwhile, contributed $5 billion in operating income, up 450% from a year earlier. Sales advanced 12% year over year to $86.3 billion.

Jassy told analysts that a restructuring of its U.S. fulfillment network has made delivering products more efficient. Nearly 60% of Prime-member orders in the largest U.S. metropolitan areas arrived either the same or next-day during the first three months of the year, the company said.

Amazon’s high-margin advertising business is also helping profits. Ad sales jumped 24% year over year to $11.8 billion. That was just ahead of expectations of $11.7 billion, according to FactSet. In the company’s Q1 news release, Jassy said ad sales “continue to benefit from the growth of our stores and Prime Video businesses.”

Will Amazon Ever Offer A Dividend?

Meanwhile, there was some speculation heading into the report that Amazon could follow the lead of fellow Big Tech firms Meta Platforms (META) and Google by instituting a shareholder dividend. But there was no mention of a dividend in the company’s Q1 results announcement.

Asked about a dividend on the earnings call with analysts, Chief Financial Officer Brian Olsavsky said Amazon’s top priority remains investing in long-term growth for the business. The company expects higher capital expenditures this year as it builds out AI-capable data centers. The company is also paying down debt from when it lost money in 2022, Olsavsky said.

Another potential concern from the Q1 report: Amazon gave a lower-than-expected sales outlook. For the current quarter, Amazon guided for sales of $144 billion to $149 billion. Analysts were looking for $150.12 billion in sales for the June-ending quarter, according to FactSet.

The guidance and dividend letdown likely contributed to Amazon stock having more muted gains after the generally positive report. Amazon stock gained roughly 2% in next-day trading, compared to an 8% rally following its Q4 results in February.

Analysts with William Blair wrote following the Q1 report that investors were “effectively expecting” the overall results Amazon posted.

“Add to this a difficult trading environment for megacap tech stocks coming off a heady 2023, comments around incremental spending to support AI, and no signs of a dividend any time soon, and shares are likely to remain relatively muted on this print,” William Blair’s Dylan Carden added in the recent client note.

Amazon Stock: Wall Street Projections For 2024

Still, Wall Street analysts are broadly positive on Amazon stock.

Of the 64 Amazon stock analysts following the company, 95% hold a buy rating, according to FactSet. Further, FactSet data shows those analysts have, on average, set a 12-month price target of 222.26 for Amazon stock, according to FactSet. That implies roughly 20% upside from Amazon’s trading price early on Monday, May 20.

After posting a loss in 2022, Amazon’s earnings bounced back in a big way last year. Now, Wall Street analysts are expecting further earnings growth for 2024. Consensus projections see Amazon’s posting adjusted earnings of $4.55 per share for the December 2024 fiscal year, according to FactSet. That would mark a 57% increase from 2023. Amazon’s earnings climbed to $2.90 per share for fiscal year 2023, compared to a loss of 27 cents per share in 2022.

Further, Amazon’s operating income is expected to climb 68% to $62 billion in 2024. That’s a slowdown from the 200% in operating income Amazon posted in 2023 but the growth rate last year benefited from comparisons to 2022, when operating income sank 51% to $12.25 billion.

Amazon’s revenue, meanwhile, is expected to grow 11% to $638.8 billion in 2024. Sales grew 11.8% in 2023 and 9.4% in 2022.

Will Regulators Take A Bite Out Of Amazon Stock?

Meanwhile, Amazon is staring down what is likely the biggest legal fight in its 30-year history. Regulators are challenging Amazon’s market power and the company likely will grapple with intense scrutiny in the coming years.

Amazon’s regulatory problems came into sharp focus on Sept. 26 when the Federal Trade Commission and 17 state attorneys general filed a major antitrust lawsuit against Amazon.

The FTC accuses the company of using its market power to inflate prices and overcharge merchants. Amazon rejects the allegations, arguing that the FTC is “wrong on the facts and the law, and we look forward to making that case in court,” the company said in a statement.

In an Oct. 3 client note, JPMorgan analyst Doug Anmuth said the lawsuit “was very much as expected, and we believe it will be challenging to prove that AMZN illegally maintains monopoly power.”

Technical Analysis Of Amazon Stock

Amazon stock’s technical ratings are strong following the strong earnings report.

The IBD Stock Checkup tool shows Amazon stock with a Relative Strength Rating of 87 out of a best-possible 99, indicating the stock has outperformed most of the market over the past 12 months. 

Amazon stock also holds an IBD Composite Rating of 92 out of a best-possible 99. The score means AMZN stock currently tops 94% of all other stocks in terms of key performance metrics and technical strength.

Further, Amazon stock holds an Accumulation/Distribution Rating of C+. That rating analyzes price and volume changes in institutional ownership for a stock over the past 13 weeks. The current rating indicates slightly more buying than selling by institutions.

Here is a guide to understanding IBD’s rating system.

Amazon Market Cap

You can check for Amazon’s current stock price here. Amazon’s market cap is $1.92 trillion, as of  market open May 20. Here is how the stock has grown over time:

*Prices as of market open May 20

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