The euphoria surrounding artificial intelligence (AI) is in full swing. Both the S&P 500 and Nasdaq Composite indexes are trading near record levels, and many on Wall Street are anticipating further gains.
Among the hottest names in AI are the “Magnificent Seven” stocks — a catchy moniker used to collectively describe megacap behemoths Microsoft, Alphabet, Nvidia, Apple, Meta Platforms, Tesla, and Amazon (NASDAQ: AMZN).
Microsoft and Nvidia have been identified as two early darlings in the AI revolution. But e-commerce and cloud computing leader Amazon has quietly made some notable progress of its own.
Brian Nowak of Morgan Stanley recently raised his price target for Amazon stock to $215 — implying roughly 15% upside as of market close on April 10.
Let’s break down why now could be a terrific opportunity to scoop up shares of Amazon.
Cash flow is king
The last couple of years have been challenging for Amazon. The macroeconomy has been plagued by unusually high inflation, causing the Federal Reserve to enforce a number of aggressive interest rate hikes.
The combination of lingering inflation and rising borrowing costs had a meaningful impact on both consumers and businesses. As a result, Amazon’s e-commerce and cloud software businesses witnessed stalling growth as corporations and consumers reined in spending.
Nevertheless, Amazon’s management adjusted and proved that the company can thrive even during more daunting economic periods. During 2023, inflation began to cool while artificial intelligence (AI) became all the rage in the tech sector.
Amazon’s growth began to accelerate again — but it was the company’s profitability profile that really shined.
Image source: Amazon Investor Relations.
In 2023, Amazon generated a jaw-dropping $36.8 billion in free cash flow, which is what’s left over from cash flow after operations expenses and capital spending This is quite a turnaround considering that the year before, Amazon burned $11.6 billion of cash.
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The most encouraging part about Amazon’s consistent and compounding cash flow is that it comes from…
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