My favourite US growth stock’s up 33% this year. I think it’s just getting started
Amazon‘s (NASDAQ: AMZN) the largest holding in my portfolio right now. So it’s fair to say that I’m bullish on the US growth stock.
This year it’s done really well, rising about 33%. However, I see room for more share price gains from here – I reckon the stock’s just getting started.
Why I’ve gone all in on Amazon
I’ve been banging on about Amazon for a while now. And it looks like my investment thesis is finally playing out. Recently, the stock hit new all-time highs. And over the last month, it’s outperformed other ‘Magnificent 7’ stocks such as Nvidia, Microsoft, Meta, and Apple.
I’ve been bullish for a number of reasons. One is that profits are sky-rocketing thanks to a major efficiency drive by CEO Andy Jassy. This year, Amazon’s earnings per share are expected to rise a whopping 77%. Among the Mag 7, only Nvidia has a higher earnings growth forecast.
Another is that there are several factors that should boost Amazon’s profit margins in the years ahead. These include the company’s move into digital advertising (a high-margin business), more third-party sellers on its e-commerce platform (these sellers are more profitable for the company), and the growth of its very profitable cloud computing division, AWS.
A third reason I’m bullish is that, relative to the other Mag 7 stocks, Amazon’s under-owned. Today, just about every fund manager on the planet has positions in the likes of Apple, Microsoft, and Alphabet (Google). Amazon however is far less popular. This means there’s room for more buyers to come in.
Finally, the stock’s valuation is near historical lows. Currently, the price-to-earnings (P/E) ratio using the 2025 earnings forecast is just 33 (not so long ago it was near 300). That’s a high earnings multiple by UK standards. But given this company offers exposure to artificial intelligence (AI), cloud computing, self-driving cars, and more, I think it’s quite reasonable.
$250 in 2025?
Looking ahead, I expect the Amazon share price to continue climbing. And it seems that the analyst community shares my view. This month, more than 20 brokers have raised their share price targets for the stock. Several, including Citi, Truist Securities, Wedbush, and JP Morgan have targets of $250 or higher.
I reckon $250’s achievable in 2025. Looking further out though, I see no reason why this stock couldn’t go on to hit $300 or $400 in the years ahead, assuming its earnings continue to rise.
Of course, there are plenty of factors that could change the trajectory here and result in share price weakness. Higher-than-expected capital expenditures are one. In the coming years, Amazon’s going to have to spend heavily on AI, so this scenario can’t be ruled out.
Competition from Chinese rivals in e-commerce and Big Tech firms in cloud computing and digital advertising are other key risks to consider. This could result in lower-than-expected growth and profitability (note that Amazon just launched its ‘Haul’ service to compete with Temu).
I’m pretty excited about the potential here though. I’m backing this stock to generate strong returns for my portfolio over the next five to 10 years.
The post My favourite US growth stock’s up 33% this year. I think it’s just getting started appeared first on The Motley Fool UK.
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Edward Sheldon has positions in Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
