Buffett Stock Near $100 With 36% Upside
Amazon is a retail behemoth that extends far beyond the realm of eCommerce. From cloud and storage services to analytics and third-party selling, Amazon has a diverse portfolio that generates billions of dollars in revenue each year. And with the backing of investment legend Warren Buffett, now is the time to consider buying Amazon shares before they reach fair value.
Amazon? A Value Stock?
In mid-2021, Amazon stock reached an impressive $186 a share, yet despite its status as a FAANG member, it has slowly transformed into what many consider a value stock.
Macroeconomic factors have led to a slowdown in revenue for many Big Tech companies, but that doesn’t mean Amazon is not a solid investment. The company maintains its industry-leading position in the eCommerce market, and its Amazon Web Services (AWS) continues to dominate the cloud computing industry, holding more market share than Microsoft and Alphabet combined.
But Amazon’s potential for growth doesn’t end there. Its digital advertising business is gaining momentum, and the company continues to invest in new opportunities. Most recently, the company announced a $5 prescription subscription for Prime members.
While Amazon’s dynamic business approach can make it difficult to value, its price-to-sales ratio suggests that the stock is relatively cheap right now, similar to figures from 2015 before the announcement that AWS would be treated as a separate segment. Following that announcement, the stock price began to soar and by 2020, shares had more than quadrupled.
With Amazon’s stock price down over 30% in the past year and the company’s challenges being temporary, it’s becoming increasingly clear that Amazon is a value stock. And with Berkshire holding over 10.6 million shares, it’s a solid choice for investors looking to follow in the footsteps of investment legend Warren Buffett.
AWS Could Support Impressive Future Growth
At present, many associate Amazon primarily with online shopping, but there are those who argue that the opportunities surrounding the cloud are the future. The good news is that both segments are thriving and positioned for growth, and they are both a major component of Amazon’s future success. The opportunities surrounding Amazon Web Services (AWS) are only just beginning.
In Amazon’s most recent third-quarter results, sales for the AWS segment increased 27% year-over-year, reaching $20.5 billion. This segment accounted for over 16% of Amazon’s net sales, which hit $127.1 billion. The company announced it would continue expanding AWS’s infrastructure, launching the AWS Asia Pacific Region and its second AWS Middle East Region.
From Amazon’s AWS Generation Q Fund at the Harvard Quantum Initiative to its AWS-designed Trainium chips, the tech giant is continuously innovating and expanding in this space. The growth opportunities are immense; cloud growth could continue for years as demand grows. Gartner projects that total spending on the public cloud will be over $590 billion in 2023, representing a nearly 21% increase from 2022.
As of Q3 2022, AWS held a 34% market share, followed by Microsoft Azure (21%) and Google Cloud (11%). This market share means Amazon should be well-positioned when cloud adoption hits the trillion-dollar mark. Research shows that by 2030, the cloud could generate $3 trillion in EBITDA. For long-term investors, this is reason enough to consider buying discounted shares of Amazon.
Strong Moat, Cheap Price
Many were surprised when Warren Buffett snapped up such a large position in Amazon. After all, this tech stock wasn’t considered a “bargain” by traditional Buffett standards.
But upon closer examination, it becomes clear that Amazon’s competitive advantages and future potential are what caught Buffett’s attention. He particularly noted Amazon’s “economic moats,” referring to the barriers that protect a company’s market share from competition.
One such moat is Amazon’s Prime program. With over 200 million members, Amazon has a loyal customer base that enjoys fast, free shipping and access to streaming services, discounts, and other perks.
This not only brings in significant revenue, but also encourages these members to spend more on Amazon.com. Additionally, Amazon’s customer service and focus on satisfaction have set the industry standard, and have played a key role in the company’s success. As Jeff Bezos has said, “The best customer service is when the customer doesn’t need to call or contact you, it just works.”
It’s Time to Buy Shares of Amazon
Despite facing some challenges in the present, Amazon’s future looks bright. As a global leader in e-commerce, the company’s Prime program continues to gain traction worldwide, while its cloud computing segment, AWS, is poised for significant growth. With its commitment to customer service and focus on satisfaction, Amazon has established itself as an exceptional business. Now is an opportune moment for long-term investors to consider buying shares, as even if the stock experiences a dip, the potential for growth in the next five to ten years is undeniable. By our estimates, the upside for Amazon sits at $136 per share in the medium term and much higher longer term.
