Amazon stock has been under the spotlight for years, and today, we revisit its potential with an updated discounted cash flow (DCF) model. Here's a comprehensive analysis of Amazon's valuation and why it remains one of the top nine stocks to buy in 2025.
Amazon's Growth Trajectory
Amazon's overall revenue growth has slowed to 10.5% year-over-year, with management forecasting further deceleration. However, specific segments within Amazon are experiencing faster growth, particularly Amazon Web Services (AWS), which boasts a 20% year-over-year increase. Other profitable segments like advertising revenue and Amazon Prime memberships are also expanding rapidly. These lucrative divisions are driving profitability and cash flow growth for the company.
Profitability Expansion
Amazon has achieved a remarkable milestone: its cash flow from operations to sales ratio has reached 18% over the trailing 12 months, nearly doubling over the last decade. This profitability expansion stems from AWS growth, economies of scale in e-commerce, and worldwide operational efficiency. Notably, Amazon's global e-commerce operations, once profitable only in North America, have turned consistently profitable worldwide in recent quarters.
Investment Strategy
Amazon is set to invest over $105 billion annually in capital expenditures—the highest of any company globally. Despite the challenges of maintaining high returns on invested capital (ROIC) while scaling investments, Amazon has increased its ROIC to 20%. This achievement highlights the company's robust management and operational excellence.
Valuation Insights
Amazon is trading at a forward price-to-earnings (PE) ratio of 26, relatively low compared to its historical valuation. While uncertainties like tariffs on Chinese goods pose risks, Amazon's competitive advantages in cloud services and e-commerce provide a strong foundation for long-term growth.
Discounted Cash Flow Update
The updated intrinsic value for Amazon stock is calculated at $331 per share, significantly higher than the current market price of $196 per share. This valuation update factors in increased free cash flow forecasts, share repurchases, higher debt balances, and non-operating asset adjustments.
Final Recommendation
Amazon continues to demonstrate strong management and strategic investments in emerging technologies like AI and automation. As a result, the DCF model reaffirms that Amazon remains one of the top nine stocks to buy in 2025.
https://youtu.be/PtcRhYlDdfE?si=-ksIJVHXNec3Xj2g
Amazon stock has been under the spotlight for years, and today, we revisit its potential with an updated discounted cash flow (DCF) model. Here's a comprehensive analysis of Amazon's valuation and why it remains one of the top nine stocks to buy in 2025.
Amazon's Growth Trajectory
Amazon's overall revenue growth has slowed to 10.5% year-over-year, with management forecasting further deceleration. However, specific segments within Amazon are experiencing faster growth, particularly Amazon Web Services (AWS), which boasts a 20% year-over-year increase. Other profitable segments like advertising revenue and Amazon Prime memberships are also expanding rapidly. These lucrative divisions are driving profitability and cash flow growth for the company.
Profitability Expansion
Amazon has achieved a remarkable milestone: its cash flow from operations to sales ratio has reached 18% over the trailing 12 months, nearly doubling over the last decade. This profitability expansion stems from AWS growth, economies of scale in e-commerce, and worldwide operational efficiency. Notably, Amazon's global e-commerce operations, once profitable only in North America, have turned consistently profitable worldwide in recent quarters.
Investment Strategy
Amazon is set to invest over $105 billion annually in capital expenditures—the highest of any company globally. Despite the challenges of maintaining high returns on invested capital (ROIC) while scaling investments, Amazon has increased its ROIC to 20%. This achievement highlights the company's robust management and operational excellence.
Valuation Insights
Amazon is trading at a forward price-to-earnings (PE) ratio of 26, relatively low compared to its historical valuation. While uncertainties like tariffs on Chinese goods pose risks, Amazon's competitive advantages in cloud services and e-commerce provide a strong foundation for long-term growth.
Discounted Cash Flow Update
The updated intrinsic value for Amazon stock is calculated at $331 per share, significantly higher than the current market price of $196 per share. This valuation update factors in increased free cash flow forecasts, share repurchases, higher debt balances, and non-operating asset adjustments.
Final Recommendation
Amazon continues to demonstrate strong management and strategic investments in emerging technologies like AI and automation. As a result, the DCF model reaffirms that Amazon remains one of the top nine stocks to buy in 2025.
https://youtu.be/PtcRhYlDdfE?si=-ksIJVHXNec3Xj2g