You may have overlooked it, but Amazon’s (NASDAQ: AMZN) stock quietly surged by 81% in 2023, marking one of the company’s most stellar years to date. As the market fixated on Nvidia and other AI stocks amidst the hype over ChatGPT and generative AI applications, Amazon silently witnessed a resurgence, recouping from the 2022 bear market that had halved its stock price.
A Tech Stocks Renaissance
Amazon’s upward trajectory didn’t materialize in isolation. In 2023, tech stocks experienced an upsurge, fueled by early-year bargain prices and the promise of a new AI revolution spearheaded by generative AI technology. The Nasdaq Composite closed the year with a 43% gain, while the Nasdaq 100 surged by a remarkable 54%. The performance of the “Magnificent Seven,” comprising the seven most valuable tech stocks on the market, is a testimony to this trend.
Surging Profitability
Strategically, Amazon’s most significant move in 2023 was a concerted effort to enhance its cost structure as CEO Andy Jassy sharpened the company’s focus on profitability like never before. This included a substantial layoff of around 27,000 corporate employees, the closure of experimental businesses such as the Scout home delivery robot and Amazon Care healthcare service, and the shutdown of several cashierless Amazon Go stores. As a result, operating margin in 2023 exhibited a sharp increase, bolstered by growth in high-margin businesses like the third-party marketplace, advertising, and Amazon Web Services cloud infrastructure business. The company’s operating income in the third quarter alone soared from $2.5 billion to $11.2 billion, underscoring the significant improvements across all three business segments.
Expectations for Amazon in 2024
Given Amazon’s profitability surge in 2023, its valuation, although seemingly steep with a price-to-earnings ratio of 75, appears justified. The company still has ample room to expand its margins, especially as its revenue gradually shifts to higher-margin businesses. Furthermore, the expanding opportunities in artificial intelligence (AI), exemplified by the launch of its Bedrock AI hosting service for foundational models and a notable partnership with Anthropic AI, serve as additional growth drivers. Despite the unlikelihood of an 81% surge in 2024, Amazon’s relentless drive to elevate its margins and leverage its wide economic moat points to further stock gains in the coming year.
When considering where to invest $1,000 right now, Amazon undoubtedly holds its position as a formidable contender.