AMZN Stock price prediction: Will Amazon Stock Hits New Highs in 2025?

AMZN Stock price prediction, as we look ahead to 2025, investors are keenly interested in Amazon stock performance and whether it can reach new highs.

Amazon (AMZN), the powerhouse in e-commerce and cloud computing, delivered an exceptional performance, reaching an all-time high of $233. With a remarkable gain of 50%, Amazon significantly outperformed benchmark indices, including the S&P 500 (SPX), which saw a rise of 23%. The pressing question now is whether this momentum will continue into 2025. I believe the answer is a definite yes, driven by a resurgence in AI-driven growth within AWS, a diversified business model, opportunities in generative artificial intelligence, and strong cash flow expansion.

Amazon Achieved Strong Growth Across Diverse Business Segments

Amazon has evolved significantly from its beginnings as an online retailer, transforming into a multifaceted powerhouse with a uniquely diversified business model. The company boasts a vast and loyal customer base, with millions of users worldwide. In the cloud computing arena, Amazon remains the market leader, capturing over 30% of the market despite fierce competition from Microsoft’s Azure. Its AWS (Amazon Web Services) segment continues to be the primary source of profits.

AWS sales surged by an impressive 19.1% year-over-year, reaching $27.5 billion, driven by a notable increase in AI-driven demand. The segment’s operating income soared by 48.6% year-over-year to $10.4 billion, with operating margins expanding significantly from 30.3% to 38.1% during the same period last year.

In the e-commerce sector, Amazon continues to lead, supported by a robust Prime membership base of over 200 million subscribers. Despite growing competition, the company holds more than 30% of the U.S. market share, far ahead of its closest competitor, Walmart, which remains in single-digit territory. In Q3, Amazon’s North American retail segment reported a 9% revenue increase and a remarkable 31% growth in operating income.

Growth in Amazon’s Digital Advertising Business

Amazon’s digital advertising division has also shown impressive growth. In Q3, advertising revenues climbed 19%, largely due to strong performance in its sponsored ad segment. Over the past year, advertising has generated more than $50 billion in revenue.

Moreover, Amazon is making significant strides in pharmacy services. The company has announced plans to expand its Amazon Pharmacy Same-Day Delivery service to nearly half of the U.S. population by 2025 and to open new pharmacy locations in 20 additional U.S. cities by the end of next year, highlighting its commitment to scaling this promising business segment.

Amazon’s ability to foster growth across multiple verticals while maintaining its leadership in key markets underscores the strength and resilience of its business model as it continues to innovate and expand.

AI as a Catalyst for Long-Term Growth

The year 2024 was transformative for artificial intelligence, and Amazon excelled by integrating AI across its operations. Years of substantial investment in AI have equipped the company to develop cutting-edge solutions that enhance its offerings.

Amazon unveiled an ambitious AI roadmap, including plans for a supercomputer powered by its proprietary Trainium chips, aimed at competing with Nvidia’s dominant GPUs. The company also announced plans to build a specialized server for AI startup Anthropic, demonstrating its commitment to AI innovation.

AI is poised to remain a core driver of Amazon’s revenue and profitability, solidifying its role as a foundational element of the company’s long-term growth strategy.

Amazon's recent financial performance

Amazon's financial performance in recent years highlights its impressive growth trajectory. From FY2016 to FY2024, the company's revenues more than quadrupled, increasing from $136 billion to $575 billion, which translates to a compound annual growth rate (CAGR) of 22.9%. Even more striking, earnings skyrocketed over 12 times during the same period, rising from $2.4 billion to $30.4 billion, reflecting an extraordinary CAGR of 43.7%. This robust growth has been driven by strong contributions from Amazon’s diverse business segments.

These accomplishments underscore Amazon’s capacity for innovation and resilience. Looking ahead, both revenue and earnings growth are expected to accelerate, particularly fueled by robust growth in AWS revenue, largely driven by advancements in generative AI.

Amazon's Strong Q3 Results

On October 31, Amazon released its Q3 results, showcasing impressive performance. The company reported adjusted earnings per share (EPS) of $1.43, significantly surpassing analysts’ estimates of $1.14 per share, and marking a 52.1% increase year-over-year. Net sales also rose by 11% year-over-year, reaching approximately $158.9 billion. Notably, operating income surged by 56% to $17.4 billion, while trailing 12-month adjusted free cash flow jumped by 122.9% year-over-year to $47.7 billion.

For Q4, Amazon anticipates net sales growth in the range of 7% to 11%, equating to projected revenues between $181.5 billion and $188.5 billion. Additionally, operating income is expected to fall between $16.0 billion and $20.0 billion, compared to $13.2 billion in Q4 of 2023.

AMZN Stock Valuation Appears Attractive

The valuation of AMZN stock is another positive aspect. Given Amazon's diverse business structure, the EV/EBITDA ratio is a useful metric for evaluating its valuation. Historically, as an industry leader, the company has traded at higher multiples. Currently, Amazon stock is priced at approximately 16.9x EV/EBITDA (on a forward basis), compared to its five-year historical average of 19.8x, indicating a discount of over 15%.

In terms of the price-to-sales (P/S) ratio, Amazon is trading at a forward P/S ratio of 3.7x. For comparison, cloud computing giant Microsoft has a P/S ratio of 11.3x, while social networking company Meta Platforms trades at about 9.2x. This suggests that AMZN stock is attractively valued, offering a compelling buying opportunity given the strong growth potential across its AWS and other business segments.

Analysts Remain Bullish on AMZN Stock

Despite the recent stock rally, Wall Street analysts maintain a bullish outlook on Amazon stock. Currently, the stock holds a Strong Buy consensus rating, supported by 45 Buy recommendations and one Hold. AMZN's average price target of $248.35 implies a 13.2% upside from current levels.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.