We came across a bullish thesis on Amazon.com, Inc. (AMZN) on Substack by Summit Stocks. In this article, we will summarize the bulls’ thesis on AMZN. Amazon.com, Inc. (AMZN)’s share was trading at $233.14 as of Feb 10th. AMZN’s trailing and forward P/E were 42.16 and 36.76 respectively according to Yahoo Finance.
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Amazon’s Q4 results showcased impressive growth, with revenue reaching $187.8 billion, a 10% increase year-over-year, despite a $700 million adverse foreign exchange impact. On a constant currency basis, revenue grew by 11%. Operating income surged by 61%, totaling $21.2 billion. For the full year, Amazon’s revenue grew 11% to $638 billion, while operating income soared 86%, reaching $68.6 billion. CEO Andy Jassy highlighted efficiency gains in Amazon’s fulfillment network, including optimized inventory placement, improved packaging, and increased same-day delivery sites, which contributed to the profitability boost. These efforts have reduced transportation costs per unit and enhanced speed and selection. The retail segment, which contributed $123 billion in first- and third-party sales during Q4, plays a pivotal role in profitability, with even small margin improvements having a substantial impact.
Amazon’s advertising business continues to grow, reaching $17.3 billion in Q4 revenue, putting it on track for a $69 billion annual run rate. This growth is attributed to the accessibility and effectiveness of Amazon’s full-funnel advertising, allowing businesses to target customers at various stages, from discovery on Prime Video to specialized product search ads. AWS, Amazon’s cloud division, remains a crucial growth driver, with Q4 revenue increasing by 19% to $28.8 billion, putting it on a $115 billion annual run rate. Jassy expressed optimism about AWS’s long-term potential, citing new agreements with companies like Intuit, PayPal, and Reddit. Additionally, Amazon continues to invest heavily in projects such as Project Kuiper, with CFO Brian Olsavsky noting that much of the current spending on the project is expensed, but will eventually be capitalized once it reaches commercial viability.
In 2024, Amazon’s “Technology and infrastructure” spending, which includes research and development, hit $88.5 billion, with capex for Q4 amounting to $26.3 billion. The company is expected to exceed $100 billion in capex for 2025, mainly directed toward AWS. This investment in infrastructure, particularly in AI, is seen as a strong sign for AWS’s future growth. Amazon has forecasted Q1 2025 revenue between $151 billion and $155.5 billion, reflecting 5-9% year-over-year growth, with operating income projected between $14 billion and $18 billion.
While Amazon’s free cash flow in 2025 may remain subdued due to its large capex plans, the company’s ongoing investments position it for significant medium-term profit growth. With a return on invested capital (ROIC) of 17% in 2024, up from 10.6% in 2023, and a projected $100 billion in capex for 2025, the returns on these investments are expected to drive continued value creation. Despite the stock’s slight dip after earnings, Amazon’s solid execution, robust investment strategy, and potential for explosive profit growth reaffirm its long-term potential, leading to a positive outlook for investors.
Amazon.com, Inc. (AMZN) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 286 hedge fund portfolios held AMZN at the end of the third quarter which was 308 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.