After Jumping Double Digits, Is Amazon Stock a Buy?

Amazon (NASDAQ: AMZN) may have a stronger set of competitive advantages than any other company out there, including its "Magnificent Seven" peers.

It operates the biggest cloud computing business, Amazon Web Services, with a revenue run rate that is now well above $100 billion.

Its e-commerce business has grown to dominate retail across North America and Europe, thanks to complementary businesses like its Marketplace and its Prime membership program, which helps lock in customers and encourages them to spend even more on the platform.

Image source: Amazon.

Its marketplace also strengthens its value propositions as it ensures the company has far more products (SKUs) than any of its competitors. The success and the business model of its e-commerce division have helped it build an advertising business that is now the biggest digital ad platform after Alphabet and Meta Platforms.

Investors cheered the company's latest earnings report, sending the stock up 12% after hours. Here's what's behind the latest surge.

Is Amazon's growth accelerating again?

Amazon has bounced back from the 2022 sell-off, but its gains have been relatively muted during the AI boom compared to some of its Magnificent Seven peers.

It hasn't gotten the AI tailwind that Microsoft has from its partnership with OpenAI or that Meta Platforms has, as its revenue growth has accelerated from its advertising business, which has hit a run rate of more than $60 billion.

Revenue in the third quarter increased 13.4% to $180.2 billion, ahead of estimates at $177.76 billion, and better than its growth rate in the quarter a year ago. Growth was balanced with the North America segment up 11% to $106.3 billion; the international segment rose 14% to $40.9 billion, and AWS grew 20% to $33 billion. In fact, CEO Andy Jassy said that AWS is growing at its fastest rate since 2022.

Its profitability was strong, and operating income adjusted for severance costs rose in all three segments. After adjustments, overall operating income rose 25% to $21.7 billion, and generally accepted accounting principles (GAAP) earnings per share rose $1.43 to $1.95, ahead of the consensus at $1.56. That result included a $9.5 billion gain associated with the value of its investment in Anthropic.

Amazon also shared that Trainium, its custom AI chip, grew 150% quarter over quarter, and is now fully subscribed and a multi-billion-dollar business.

The company's guidance was characteristically broad, calling for revenue growth of 10%-13% to $206 billion-$213 billion, and operating income of $21 billion-$26 billion, ahead of $21.2 billion in the quarter a year ago.

Is Amazon a buy?

Amazon continues to execute in its core businesses, while gaining traction with AI.

At this point, the company is so big that its growth rate is restrained by the law of large numbers. At a revenue run rate of around $700 billion, growing its top line by 13% means finding nearly $100 billion in new revenue in just a year.

Management still sees opportunity in both of its core business, as it's noted that the majority of retail is still not taking place online, and the majority of computing and storage is still taking place in traditional on-premise systems. That gives the company the ability to gain share in both e-commerce and cloud computing.

Additionally, Amazon is finding new ways to accelerate delivery in e-commerce and new features at AWS. Meanwhile, experimental projects like Project Kuiper also have the ability to be disruptive and drive significant revenue for the company.

Amazon stock still isn't cheap, and its days of 20%+ revenue growth are over. However, the company looks as resilient as ever, and it is still capable of delivering upside surprises. Amazon remains a buy.

Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.