Why These Two Experts Are Bullish on AMZN
Amazon's (AMZN) - Get Free Report stock performance in 2022 has been controversial. Wall Street analysts were confident that the company would see a turnaround in the second half of 2022 as inflationary pressures gradually eased.
However, inflation didn't ease, and Amazon's stock hasn't risen. But as fearful investors sell off their shares in order to avoid further losses, the Amazon bulls are seizing the opportunity to increase their holdings.
What's at the heart of their bullish sentiment? The company's cloud-computing arm, Amazon Web Services (AWS).
Figure 1: Why These Two Experts Are Bullish on AMZN
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(Read more from Amazon Maven: Amazon's (AMZN) Second Prime Day: A Wasted Effort?)
The Inflation-Proof AWS
Even though the Seattle-based juggernaut has been struggling to get through the current macroeconomic scenario, its cloud arm has steadily grown by at least 30% every quarter so far. And according to Seeking Alpha contributor App Economy Insights, that alone justifies purchasing Amazon stock.
So far, the Web Services segment is the company’s main growth driver. In 2021, the cloud arm brought in $62 billion, 13.2% of the company’s global revenue. However, in terms of operating income, AWS was responsible for 74.5% of the whole Amazon pie.
Figure 2: Amazon Q2 FY22 income statement.
App Economy Insights
The Seeking Alpha author argued that those impressive results remain “buried under inflationary pressure and supply chain challenges on the retail side.” If this statement is true, the market could be failing to calculate AWS’s fair market value.
Therefore, Amazon shares as a whole could be undervalued.
E-commerce at a Discount
Here's where things get even more interesting. According to The Motley Fool’s Nicholas Rossolillo, purchasing AMZN could mean buying AWS and receiving its e-commerce sister for free.
Rossolillo’s argument lies in the fact that Amazon’s valuation is currently $1.14 trillion. If this whole value corresponded solely to AWS’s enterprise value — a company that generated $22 billion of operating income in the last 12 months and consistently grows every year — AWS would trade for 51 times its trailing 12 month (TTM) operating profit (which looks reasonable, according the author).
“AWS is the workhorse that's driving Amazon's financials, but Wall Street seems hyperfocused on the e-commerce segments that have temporarily fallen into loss-generating territory. If you believe the e-commerce segments' red ink will be temporary, this stock looks mighty cheap,” he wrote.
Wall Street’s Viewpoint
Despite the macroeconomic headwinds, analysts from Wall Street’s top firms are confident Amazon's stock will turn around. Their bullishness is based on the company’s strong e-commerce presence, its solid Prime membership program and, of course, its dominating presence in the cloud computing industry.
“We believe the company’s long-term growth path is attractive across the e-commerce segment, AWS, digital media, advertising, Alexa, robotics, AI, and more,” said Monness Crespi & Hardt analyst Brian White, who holds a $172 price target on the stock, implying a 42% upside potential.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)
