The Pulse of Today, The Insight for Tomorrow

Both sides of Amazon made big gains that should carry over into 2025

On December 27, 2024By Littum

Amazon had a great year as the company’s IT cloud spending rebounded and e-commerce hummed. The economy next year is the big wild card. Year-to-date performance: up 48.1% Forward price-to-earnings multiple: 36.2 versus a five-year average of 58.6 Our rating: Buy equivalent 1 Our price target: $240 per share stock AMZN YTD mountain Amazon YTD ’24 look back Amazon got off to a strong start this year — reporting in February that quarterly revenue growth at its Amazon Web Services cloud unit accelerated again. At the time, management told investors that it was just the beginning and that growth at AWS would continue to accelerate throughout the year. It did—jumping from 13.2% year-over-year growth in the fourth quarter of 2023 to 19.1% in the third quarter of 2024. At the same time, Amazon’s e-commerce business showed continued improvement thanks to the regionalization of fulfillment centers that helped to speed up delivery times and reduce the cost of operating. A fast-growing advertising business was the icing on the cake in 2024. ’25 Look Ahead While 2024 was about a rebound at AWS, next year is about accelerating that growth as more companies look to take advantage of cloud services and drive generative artificial intelligence adoption. Generative AI was certainly important in 2024, and Amazon has been working hard to create its offerings to compete with Microsoft , Alphabet and others — but that’s not really what investors were focused on, other than what it meant for AWS growth. By 2025, we hope to see Amazon more directly making money and taking advantage of the new technology – both in terms of selling solutions to customers and improving its own operations. Jim Cramer recently named Amazon as one of his 12 core holdings heading into 2025. E-commerce profitability at Amazon should continue as improvement in its delivery operations appears to be a multi-year catalyst. The faster Amazon can deliver packages, the more people will go there first for their shopping needs — especially cheap everyday items, which Amazon ramped up in 2024. That, in turn, should lead to more demand for advertising on the platform from sellers and an even stickier Prime membership. The more value Prime offers, the easier it is to increase the membership fee by a few dollars, which amounts to hundreds of millions in revenue given the size of the subscription base. Improved growth, along with increased profitability, should also provide higher levels of liquidity, which Amazon may look to use for acquisitions now that regulators are widely believed to take a more favorable view of mergers under a second presidential administration of Donald Trump. We are also looking for further innovation in robotics. The timing may be uncertain, but Amazon will prove to be a big winner from robotics and automation in general, given its ability to implement these technologies in its massive warehouses — a move that should help efforts to further reduce costs to operate. A possible headwind would be a slowing economy, which could force customers to pull back again on IT spending (AWS demand) and consumer spending (e-commerce demand and advertising). However, generative AI adoption will be prioritized alongside cybersecurity, and that should help dampen any slowdown in demand for AWS. As for e-commerce, we wouldn’t be shocked to see investors focus more on costs to deliver momentum over sales — rewarding Amazon for any structural declines in costs over punishing the stock for economic forces beyond its control. (Jim Cramer’s Charitable Trust is long AMZN, MSFT, GOOGL. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO LIABILITY OR OBLIGATION IS OR WILL BE CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR DILUTION ARE GUARANTEED.

Boxes lie on a conveyor belt during Cyber Monday at Amazon’s fulfillment center in Robbinsville, New Jersey, United States, on December 2, 2024.

Eduardo Munoz | Reuters

Amazon had a great year as corporate IT cloud spending rebounded and e-commerce hummed. The economy next year is the big wild card.