Amazon: The Growth Gem with Potential

The start of the year was dynamic for the Nasdaq Composite Index, but now the technology index is taking a small breather. Market heavyweights, the so-called "Magnificent Seven," are also experiencing temporary weaknesses. A prime example is Amazon—a stock currently trading around 8% below its previous peak. For investors, this could be a rare opportunity to enter at a lower price. Amazon is considered the growth stock par excellence and offers numerous compelling reasons for an investment. Although many investors are attracted to young companies with seemingly higher growth prospects, this often involves enormous risks. With Amazon, the risk is lower because the company is strengthened by its impressive market position and a broad economic moat. A significant advantage is the company's comprehensive competitive advantages. Amazon's extensive e-commerce activities benefit greatly from the network effect. More merchants attract more customers, and more customers, in turn, generate better revenue opportunities for sellers. Furthermore, Amazon skillfully exploits economies of scale. Massive investments in logistics allow for fast and free delivery to Prime members, something smaller competitors cannot offer. Amazon's growth is impressive despite its size. Revenue in the second quarter (ending June 30) rose by 10% to $148 billion. While the online shops segment recorded revenue growth of only 5%, revenues from digital ads and cloud services at Amazon Web Services (AWS) surged by 20% and 19% respectively. Amazon forecasts revenue of between $150 billion and $158.5 billion for the coming quarter, corresponding to growth of 8% to 11%. CEO Andy Jassy and his leadership team are also focusing on significant cost reductions to make the company financially more robust. Net profit doubled year-over-year to $13.5 billion, a notable turnaround from the $2 billion net loss two years ago. Amazon benefits from several long-term trends that should support revenue growth. According to Wall Street analyst forecasts, Amazon's revenue will grow annually by 11.2% between 2023 and 2026. This is a promising outlook. It is well known that Amazon dominates e-commerce: according to Statista, nearly 40% of all online spending in the U.S. is processed through Amazon.com. With the shift in consumer spending from physical to online retailers, Amazon will continue to expand its market share. AWS is the world's leading cloud computing platform, and investments in AI capabilities are making AWS an increasingly important partner for its customers. In the streaming segment, Amazon also remains a significant player. Nielsen data shows that Prime Video is the third most popular streaming service in the U.S. The trend toward cord-cutting shows no signs of slowing down. Additionally, Amazon is a major player in the digital advertising market, achieving ad revenues of $12.8 billion in the last quarter alone. According to Grand View Research, the global digital advertising market will be worth nearly $1.2 trillion by 2030, offering Amazon substantial growth potential. Currently, Amazon's stock is trading at a price-to-sales ratio of just under 3.3. This is higher compared to the 1.7 at the beginning of 2023 but remains within the historical 10-year average. The recent price decline contributes to a more attractive valuation. Given that the current valuation can be considered reasonable, there are indeed convincing reasons why Amazon is currently the growth stock par excellence to invest $1,000 in.