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Amazon (NASDAQ:AMZN) stock has experienced a significant decline over the last nine months or so. As a result, it’s now back at pre-pandemic levels.
I already own some Amazon shares in my portfolio. Is now the time for me to buy more? Let’s discuss.
The stock is still expensive
In the short term, I’m not expecting to see a huge rebound in Amazon’s share price. Even after the big share price fall, the stock is still expensive (the P/E ratio using 2023’s earnings forecast is over 50).
And with central banks raising interest rates, and investors focusing heavily on valuations, it’s not a great environment for expensive growth stocks right now.
Meanwhile, Amazon is dealing with a number of challenges at present including slower growth, weaker consumer spending, higher costs, and warehouse overcapacity. These are all impacting sentiment towards the stock.
Having said all that, the fact that the stock is back at pre-pandemic levels piques my interest. Because this is a company that has enormous potential in the long run, in my view.
The online shopping leader
I believe there’s plenty of growth to come from the company’s online shopping division. According to Precedence Research, the global business-to-consumer e-commerce market is set to grow by around 8% between now and 2030. This market growth should provide strong tailwinds for Amazon.
And it has several competitive advantages in this space. Not only does it have a strong brand (it’s the third biggest brand in the world, according to Kantar BrandZ) but it also has over 200m Prime members (way more than before the pandemic). These members tend to buy more on the website to justify the annual fee.
Cloud computing dominance
I also see plenty of growth potential in the company’s cloud computing division. According to Grand View Research, this market is set to grow by around 16% per year between now and 2030.
Here, Amazon is the largest player in the industry with a market share of over 30%. This market dominance is also a competitive advantage. Last quarter, cloud revenues were up 27.5%.
Momentum in digital advertising
Digital advertising is another market that looks set to propel Amazon’s revenues higher. Here, it’s the third-largest player behind Google and Facebook.
And what stands out to me is that its digital advertising sales have been rising in 2022 while those of its peers have slumped. In Q3, Amazon’s advertising sales rose 25% year on year to $9.6bn.
Other growth drivers
Looking beyond these three industries, I also see growth potential in the following markets:
- Artificial intelligence – Amazon is the world’s top AI company in 2022, according to AI Magazine.
- Self-driving cars – In 2020, Amazon paid $1.2bn for autonomous driving company Zoox.
- Digital healthcare – Amazon recently launched Amazon Clinicwhich provides users with access to third-party health providers.
Putting this all together, Amazon’s future looks exciting, to my mind.
Should I buy now?
Given that the stock is currently back at pre-pandemic levels (and around 50% off its highs), I think it is a good time to buy more Amazon stock for my portfolio. I’m not expecting huge returns in the short term. However, in the long run, I think buying now will pay off.