Amazon.com, Inc. (AMZN): A Bull Case Theory

We came across a bullish thesis on Amazon.com, Inc. (AMZN) on Elliot’s Musings’ Substack by Elliot. In this article, we will summarize the bulls’ thesis on AMZN. Amazon.com, Inc. (AMZN)’s share was trading at $195.78 as of Nov 4th. AMZN’s trailing and forward P/E were 42.29 and 33.67 respectively according to Yahoo Finance.

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Amazon delivered a record quarter, with operating income reaching $17.4 billion—a 56% year-over-year increase, driven by robust growth in both North America and International segments. Unit sales surged, fueled by promotional events like Prime Day and Prime Big Deal Days, alongside Amazon’s commitment to low prices, broad product selection, and fast delivery. Advertising sales also contributed, growing substantially as a high-margin revenue stream, reinforcing Amazon’s income sources. Amazon Web Services (AWS) reported $27.5 billion in revenue, up 19% year-over-year, now at an annualized run rate exceeding $110 billion. AWS operating income increased by 50% to $10.5 billion, with margins expanding by 780 basis points to 38.1%, helped by a 200-basis-point boost from extended server lifespans. Amazon’s AI offerings are on a multi-billion dollar revenue run rate with triple-digit growth, and with the market expecting AWS growth to accelerate to 20% in 2025, AWS alone could justify a valuation around $1.2 trillion, representing over half of Amazon’s market cap.

The North America retail segment posted a 9% revenue increase, reaching $95.5 billion, with operating margins expanding to 5.9%. Margin improvements are expected as Amazon enhances fulfillment efficiency and shipping economics. Amazon’s advertising growth is another lever, contributing to margin expansion. International retail sales reached $35.9 billion with 3.6% margins, marking a 280-basis-point increase, and Amazon anticipates that margins in international markets will eventually align with North America’s. Ad revenue jumped 19% to $14.3 billion, supported by expansion in sponsored products and Prime Video ads, as well as AI-driven optimization for advertisers.

Amazon projects a capital expenditure of $75 billion for 2024, likely rising to around $90 billion in 2025, primarily to bolster AWS capacity amid supply constraints, especially in chips. CEO Andy Jassy highlighted that demand for AWS currently outpaces capacity, with the expanded CapEx targeted to ease these bottlenecks and sustain future growth. Amazon’s AI sector, fueled by AWS, is witnessing explosive growth, demanding significant investments in infrastructure like data centers and AI hardware.

The investment thesis for Amazon is built on strong growth in AWS, retail, and advertising, which drive record profits and increasing margins. Anticipated free cash flow growth and significant investments in AI and AWS enhance Amazon’s valuation potential, making it an attractive long-term investment. With free cash flow expected to hit $90 billion by 2026, Amazon’s fair value is estimated between $2 trillion and $2.7 trillion, presenting a strong bullish case.

Amazon.com, Inc. (AMZN) is on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 308 hedge fund portfolios held AMZN at the end of the second quarter which was 302 in the previous quarter. While we acknowledge the risk and potential of AMZN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.