Is Amazon Stock a Buy Right Now?
Key Points
Amazon has underperformed major indexes and other Magnificent Seven companies.
The tech giant's e-commerce, cloud infrastructure, and digital-advertising businesses have delivered strong results recently.
The market could be undervaluing Amazon's recent wins and underestimating its growth opportunities.
- 10 stocks we like better than Amazon ›
Despite its leading position in cloud-infrastructure services, Amazon (NASDAQ: AMZN) stock has been a relative underperformer in the age of high-flying artificial intelligence (AI) stocks. While the company's share price is up roughly 43% over the last five years, this performance comes in far below the 86% total return delivered by the Nasdaq Composite index.
Even with strong financial results recently, Amazon has failed to make much ground from a valuation perspective. The company's share price is up just 3% year to date despite a gain of 16% for the S&P 500 and a gain of 20% for the Nasdaq. Is Amazon still a top long-term buy or is the stock dead money?
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Can Amazon still be a big long-term winner?
The substantial underperformance for Amazon stock compared to other "Magnificent Seven" tech giants is an interesting scenario. Compared to other tech leaders, the company was hit particularly hard by pandemic-related conditions and inflationary trends. On the other hand, it still commands a leading position in the cloud infrastructure space that's at the center of the AI trend.
In addition to strong growth for the Amazon Web Services (AWS) business, the company's e-commerce segment has returned to posting much stronger growth. Aided by the strengths inherent in operating the world's leading online retail platform, the tech giant's digital advertising business has also been expanding at a rapid clip.
These positive developments have been moving the valuation needle less than might otherwise be expected, and there are good reasons to think that Amazon's forward growth outlook is also being underestimated. In addition to the likelihood that AI-related demand will continue to power strong expansion for AWS, robotics and automation trends have the potential to radically elevate profitability for the company's e-commerce business.
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Keith Noonan 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.
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