Amazon (NASDAQ: AMZN) shares have been on fire lately. In fact, they’ve risen 120% since early 2023 and are now sitting just under a 52-week high of $187.
To the detriment of my wealth, I’ve never owned Amazon stock, despite its obvious qualities.
So, is now the time for me to rectify this oversight? Let’s discuss.
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Transition
Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1 [at Amazon].
Jeff Bezos, 2016 letter to Amazon shareholders
CEO Andy Jassy took over from Jeff Bezos in 2021. Nearly three years later, some critics argue that Amazon now focuses more on driving near-term efficiency than radical innovation for the future.
There is a degree of truth in that, I’d say, as it has been many years since we’ve seen a new Amazon business launched and scaled as successfully as Amazon Web Services (AWS) or Prime.
Voice assistant Alexa hasn’t become the game-changer many expected, myself included. I originally saw it as a powerful AI concierge with unlimited use cases and profit generation potential. A chatbot on steroids, basically, that would challenge Google’s search empire.
However, most people I know still mainly use Alexa to play songs on their Echo devices!
Plus, AWS is now growing more slowly than rivals Google Cloud and Microsoft Azure.
Therefore, it’s not a slam-dunk certainty that Amazon will remain a dominant force indefinitely.
India opportunity
Having said all that, it’s hard not to see Amazon growing ever larger. Take India, for example, where it has a large operation.
According to Statista, the Indian e-commerce market has grown from $39bn in 2017 to $74bn by 2022.
Yet this accounted for less than 10% of the total retail market in India. And e-commerce is set to become a $350bn market by 2030!
Therefore, assuming no regulatory intervention, Amazon seems very likely to grow its total 100m+ user base there for many years, potentially decades.
Valuation
Amazon stock often appears pricey based on the price-to-earnings (P/E) metric. Right now, the P/E is 63.
However, many growth investors prefer to look at Amazon’s price-to-operating cash flow (P/OCF) ratio.
As might be evident, this considers the amount of cash generated from the operations of the underlying business. Currently, this is 23 versus a 13-year median of 27.44.
Based on this, the stock isn’t overvalued. And analysts see the company’s operating cash flow rising 49% to $127bn this year. Then to $166bn in 2026.
Oh, and based on consensus estimates, annual revenue could top $1trn by 2030!
It might not be Day 1 at Amazon anymore, but we’re certainly nowhere near Day 2.
Diversification
One issue I’ve been wrestling with lately is duplication of tech stocks in my portfolio.
I have a large holding in Scottish Mortgage Investment Trust, which itself has large positions in Amazon, Nvidia, Tesla, and Meta.
Meanwhile, I’m invested in Pershing Square, which holds Alphabet. I also own Alphabet shares.
So I’m wary about increasing my exposure to mega-cap tech stocks by also investing in Amazon.
Of course, this is only relevant to my own portfolio. If I didn’t have this issue, I would consider investing in Amazon shares, despite them flirting with a fresh all-time high.
