3 Reasons to Buy Amazon Stock, According to DBS

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It’s safe to say most investors did not foresee shares of Amazon (NASDAQ:AMZN) shedding 50% of their value last year but that’s how it panned out in 2022’s market rout. However, 2023 is off to a decent start with the stock showing year-to-date gains of 13%.

Sachin Mittal – Head of Telecom, Media and Technology Research of Singapore banking giant DBS – thinks there are enough reasons for Amazon to keep pushing ahead and points to several elements of its multi-thronged business that will help to do so.

First off, there’s Amazon Web Services (AWS), which in the face of macro uncertainties, “continues to be the key growth driver.” With cloud infrastructure spending expected to be reined in by soaring inflation and a technical recession in the U.S., the segment is still showing “resilience.” Taking a 32% share of the global market certainly helps and considering that it contributed just 16% to 3Q22 revenue but represented all the company’s profit, Mittal says it is “undoubtedly the most valuable business for AMZN.”

Then there’s the most recent “growth driver,” Amazon’s Advertising business, which is expected to account for 7% of global digital ad revenue in 2022, compared to less than 1% just six years ago, according to eMarketer. The segment generated revenue of $9.6 billion in 3Q22, amounting to a 25% year-over-year uptick, easily beating rivals such as SNAP (6%), TWTR (2%) and META (-4%). Explaining why Amazon’s ad sales have “grown dramatically” vs. peers, Mittal thinks more advertisers are “turning to AMZN’s retail media network to deceive Apple’s privacy changes and get closer to shoppers.”

Lastly, there’s the bread-and-butter e-commerce segment, which is still trying to “figure out a way to return to its roots of profitability.” Yet here, Mittal is also optimistic, noting that with a 38% chunk of the US e-commerce sector, it is still the dominant ecommerce player while also “likely to experience margin expansion.”

For all the above reasons, Mittal rates Amazon stock a Buy while his $124 price target suggests the shares are undervalued by 30%.

Over the past 3 months, 39 analysts have waded in with AMZN reviews and these breakdown 36 to 3 in favor of Buys over Holds, all naturally culminating in a Strong Buy consensus rating. At $136.91, the average target makes room for 12-month returns of ~44%. (See Amazon stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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