Prediction: Amazon Stock Will Skyrocket After Oct. 29 Thanks to AWS Growth
Amazon's stock popped after reporting strong AWS growth in Q2. I like the odds of history repeating.
Amazon (AMZN) has been a less favorable investment recently, with the stock price modestly up 8% year-to-date compared to the S&P 500 (^GSPC) rise of 3%. However, analysts anticipate a significant rebound once Amazon releases its Q3 earnings on October 29. This optimism stems from the company's robust growth in its cloud computing division, Amazon Web Services (AWS).
AWS generated 60% of Amazon's operating income in Q2, even though it accounts for only 21% of the company's revenue. The key driver is AWS's superior operating margins in comparison to Amazon's e-commerce business, which is notoriously challenging to profit from. Amazon is actively investing $220 billion this year to bolster its computing infrastructure and accelerate AWS growth.
The company's commitment to AI workloads has proven successful, with AWS growth rates surging to 37% in Q2. If AWS continues its impressive growth trajectory, potentially reaching the mid-40% range, it could spark another surge in Amazon's stock price. Moreover, Amazon's current valuation appears relatively reasonable, outperforming historical levels when considering operating income rather than just price-to-earnings ratios.
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