Is Amazon Stock A Buy As Walmart, Target Step Up Offerings?

Amazon.com (AMZN) has started strong out of the gate in 2024, with a recent earnings report that sent its stock soaring. But the tech behemoth will need to keep improving the profitability of its massive online retail business for Amazon stock to stay hot, while also fending off challengers in the cloud-computing market.

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With a market cap above $1.8 trillion, Amazon is among the world’s most valuable companies. The Seattle-based company is approaching a record high share value it last reached in 2021. But it is facing stepped-up competition for digital sales from Walmart (WMT) and Target (TGT).

Amazon is the market leader in e-commerce, as well as cloud-computing through its Amazon Web Services division.  The company has turned to generative artificial intelligence and a booming advertising business to boost its growth.

However, Amazon is extended well above its last proper buy point. And 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.

Target Takes Aim At Prime, Walmart Pushes Faster Delivery

Amazon hold the largest share of U.S. online retail sales by a significant margin. But giants of brick-and-mortar retail are stepping up their challenges.

Target, for instance, recently announced a paid membership program called Target Circle 360. The $99 annual subscription includes free same-day shipping on orders $35 or more through Target’s Shipt service, as well as free two-day shipping on other orders. The membership product launches April 7 and will have a promotional price tag of $49 annually through May 18.

The service will compete with Amazon’s $139 annual Prime subscription offering and the $98 per year Walmart+. Walmart, meanwhile, announced last week that it will expand its on-demand delivery service to start at 6 a.m., with express delivery in an hour or less.

Still, Amazon’s hold on the U.S. e-commerce market is strong.

Amazon, Walmart, Target and eBay (EBAY) comprise what analysts at Bank of America called the Big 4 of e-commerce. In a recent client note, BofA analysts said they expect Amazon to command 38.7% of U.S. e-commerce sales, up from 37.7% in 2024. Walmart’s share of the market is seen rising to 8.8% from 8.3%. EBay’s share is expected to decline slightly to 2.9% while Target’s remain flat at 1.7%.

Further, BofA analysts estimated that gross merchandise value, or total value of online sales, for the Big 4 grew 15% year over year in the fourth quarter of 2023. Walmart’s growth was strongest at 17%, trailed by Amazon at 14%. Target and eBay both were relatively flat from a year earlier, the report said.

Amazon Stock Chases 2021 Record High

Amazon stock’s next milestone could be returning to a record high it reached in 2021. That would mark a full recovery for the company after a rough 2022.

Amazon stock opened trading Tuesday March 12 at 173.50, roughly 9% behind a 188.65 high from July 2021.

Shares of Amazon are up about 15% from the start of the year. Amazon stock jumped on Feb. 1, after the company reported better-than-expected earnings and a 14% revenue increase for the fourth quarter.

Wall Street analysts expect Amazon to reach a new high. Of the 61 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 208 for Amazon stock, according to FactSet. That implies roughly 20% upside from Amazon’s opening price March 12.

Amazon Joins The Blue-Chip Dow Jones Industrial Average

Meanwhile, Amazon late last month joined the Dow Jones Industrial Average, replacing Walgreens Boots Alliance (WBA).

The change reflects “the evolving nature of the American economy,” according to a news release from the S&P Dow Jones Indices. Further, the swap was prompted by a three-to-one stock split from Walmart (WMT), which reduced the retail giant’s weighting in the price-weighted index.

Amazon joins Microsoft (MSFT) and Apple (AAPL) as the three Magnificent Seven members in the index. Magnificent Seven refers to the technology firms that powered the market rally in 2023. The other members are Meta (META), Nvidia (NVDA), Alphabet (GOOGL) and Tesla (TSLA).

How Amazon Performed In Fourth Quarter

Wall Street analysts raised their target prices and estimates for Amazon following its fourth quarter earnings report.

In results published Feb. 1, Amazon said it earned $1 per share on sales of $170 billion for the December-ended quarter. Analysts projected the company would post earnings per share of 80 cents on $165.9 billion in sales for the December quarter, according to FactSet.

Sales for the quarter increased 14% year over year, while earnings surged from 3 cents a share in the year-ago quarter.

Meanwhile, sales for Amazon Web Services increased 13% year over year to $24.2 billion, in line with expectations for the closely watched cloud business.

Amazon stock jumped 8% in next-day trading. William Blair analyst Dylan Carden wrote in a client note that day that Amazon provided “a decidedly good print, with better outlook and room for continued upside.”

Retail Business Boosting Profits

The profitability of Amazon’s retail business stood out to analysts. Operating income from Amazon’s North America retail division generated $6.5 billion in operating income during the December quarter, compared to a $240 million loss last year.

Sales for the division climbed 13% to $105.5 billion.

Chief Executive Andy Jassy said a restructuring of its U.S. fulfillment network has made delivering products more efficient.

“In addition to the strong top line growth, which helped to drive improved leverage throughout our businesses, we continue to make progress on reducing our cost to serve,” Jassy said on the company’s earnings call. “The fourth quarter is our busiest time of year, supported by an increasingly large and integrated operations network.”

A booming business selling advertisements within Amazon’s website, apps and streaming channels is also boosting margins. Advertising sales grew 27% year over year to $14.7 billion. Ads are the company’s fastest-growing segment.

Evercore ISI analyst Mark Mahaney noted that this quarter marked Amazon’s highest-ever operating income.

“Three fundamental catalysts are playing out,” Mahaney wrote to clients following the report. “AWS growth is accelerating, the North American Retail segment is ramping to record-high operating margins, and the company as a whole is ramping to record-high free cash flow margins.”

Amazon Stock: AWS Growth Accelerates

Amazon’s earnings also eased some concerns about its profit-driving cloud-computing business.

The 13% year-over-year sales growth for Amazon Web Services marked an improvement from a 12% growth rate for the division in the third quarter. Analysts have been looking for signs that AWS could reaccelerate sales after a slowdown for growth last year.

AWS is the top cloud provider by market share, providing cloud computing power and storage to millions of business. It also provided two-thirds of Amazon’s $37 billion in operating income for 2023.

But investors have been watching the business with some concern since early last year. For one, revenue growth has slowed as companies cut back on some computing costs.

Plus, there are concerns Amazon is not positioned as well as Microsoft (MSFT) to win generative AI business.

Heading into Amazon’s fourth-quarter report, Piper Sandler analyst Thomas Champion wrote in a client note that 70% of the questions he was hearing from investors were about AWS.

But, as Champion wrote to clients following the report, AWS’ growth for the fourth quarter “hit the bullseye.”

Amazon’s AI Push

Market analysts expect that generative AI will drive companies to spend more on cloud services. That means the big three providers of Amazon, Microsoft and Google will be battling to lead the new market.

Microsoft, the No. 2 cloud services provider behind AWS, was quicker to embrace generative AI. Just weeks after ChatGPT was introduced late last year, Microsoft reportedly agreed to invest $10 billion as part of a strategic partnership with OpenAI, the startup behind the wildly successful chatbot that unleashed the ongoing AI frenzy.

But AWS has made AI moves of its own. In September, Amazon struck an AI deal of its own. It agreed to invest up to $4 billion in Anthropic, a rival to ChatGPT-creator OpenAI.

Before that,  the tech giant launched Amazon Bedrock in April. The service allows users of Amazon’s AWS to build generative AI applications using a range of large language models.

Further, Amazon in November used its annual AWS re:Invent conference to announce a new chatbot for businesses, a deeper partnership with AI chip market leader Nvidia (NVDA), and an updated AI chip of its own.

During the company’s Feb. 1 earnings call, Jassy he said generative AI is a “pervasive” focus for Amazon that will drive “tens of billions of dollars” in revenue in the next several years.

“We continue to see momentum around customers wanting to do their long-term Gen AI work with AWS,” Jassy told analysts.

Microsoft and Google, however, both recorded faster overall growth for their cloud businesses in the fourth quarter. So the battle for Amazon to defend its title of cloud king bears watching for investors.

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 back-to-back earnings reports that topped expectations.

The IBD Stock Checkup tool shows Amazon stock with a Relative Strength Rating of 91 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 97 out of a best-possible 99. The score means AMZN stock currently tops 97% of all other stocks in terms of key performance metrics and technical strength.

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

But with shares hovering for the past week in the mid-170 range, Amazon stock is extended well beyond its most recent 145.86 buy point from a consolidation pattern, according to IBD MarketSurge.

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 $1.8 trillion, as of market open March 12. Here is how the stock has grown over time:

*Prices as of market open March 6.

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