Amazon Stock Hits a New All-Time High: Is It Still a Buy?

Leading e-commerce and tech company Amazon (NASDAQ: AMZN) has been rallying recently, after posting strong quarterly earnings numbers, hitting a new all-time high of more than $287 along the way. It's now up around 19% for the year, and its market cap is hovering around $3 trillion. The business has been doing exceptionally well as its growth rate has been solid, and its growth opportunities are plentiful.

But has the stock gotten too expensive, or can it still be a good buy at its current levels?

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Amazon's cloud business has been taking off

A key reason investors have been bullish on Amazon's stock of late has been due to its popular cloud platform, Amazon Web Services (AWS). In the most recent quarter, which ended on June 30, AWS achieved its fastest growth rate in 18 quarters -- 37%. Not only is that important from a growth angle, but AWS also generates the best margins for the business; thus, a strong performance will also boost the bottom line. Of the $27.5 billion in operating income that Amazon posted last quarter, $16.6 billion, or 61%, came from AWS.

Despite spending heavily on artificial intelligence (AI), investors are becoming bullish that Amazon's efforts are paying off; CEO Andy Jassy says that "our AI and chips businesses each eclipsed run rates of more than $25 billion." All in all, the business is doing exceptionally well, with Amazon beating expectations on top and bottom lines for this most recent quarter.

Although it's one of the most valuable stocks in the world, based on its profits, it doesn't appear to be too expensive, as its price-to-earnings (P/E) multiple is just 22.

Is Amazon stock really as cheap as it looks?

At a P/E of 22, Amazon stock looks like a bargain buy given that the average stock on the S&P 500 trades at a P/E multiple of 24. There is, however, a bit of an asterisk with that. While its earnings soared from $18.2 billion to $62.6 billion, a big reason was that due to other income of $53.4 billion, which Amazon says is mainly from investments in AI company Anthropic. Without that, its earnings would be significantly lighter, and the stock's valuation wouldn't be as low.

Amazon, however, does still trade at a reasonably modest forward P/E multiple of around 23, which is based on analyst projections for how it will do in the year ahead. While its earnings may be inflated due to investment gains, the tech stock is by no means absurdly overvalued, as the business has been doing incredibly well.

For long-term investors, Amazon can still be an excellent stock to buy and hold, as it stands to benefit significantly from AI.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.