Amazon Could Reach $460 by 2031 on AI-Driven Growth
Amazon's recent financial results and investments in artificial intelligence (AI) have some analysts predicting strong growth for the company. Over the past five years, Amazon has faced challenges such as a rare net loss, macroeconomic headwinds, increased competition in cloud computing, and a CEO change. However, the e-commerce specialist is expected to outperform broader equities over the next five years.
Amazon's revenue increased by 20% year-over-year to $200.6 billion in the second quarter, with its cloud computing segment, Amazon Web Services (AWS), posting $42.2 billion in net sales, a 37% increase from last year. AWS accounts for most of Amazon's operating profits.
While analysts expect Amazon's earnings per share (EPS) to decline next year due to significant capex investments in AI and cloud infrastructure, the company is expected to recoup its losses and grow at a good clip from 2028 to the early 2030s. Several factors could improve Amazon's profits and margins, including its reliance on internally developed AI chips, which are cheaper than buying from external providers.
The article concludes that Amazon's shares are undervalued, with a forward price-to-earnings ratio of 21.8 compared to an average of 23.8 for consumer discretionary stocks. Assuming a 12% compound annual earnings growth rate and a constant forward P/E ratio, the stock could be worth around $460 by the end of 2031.