The “Magnificent Seven” group of stocks are U.S. tech stocks that have grown at a rate far surpassing the S&P 500 over the past decade, but particularly in 2023 and 2024. These stocks are large, high-growth companies that have pretty much made many investors tons of money.
In this article, I’ll discuss Amazon.com Inc. (NASDAQ: AMZN) the Magnificent Seven stock that I’m watching with the intention to buy on a 10% dip. Here’s why.
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Revenue growth
Amazon’s five-year history exemplifies its high growth run. For example, its revenue increased 65% to $638 billion in the five years ended 2024. Also, its net income increased 178% to $59 billion in the same time period. Finally, cash from operations increased 75% to $116 billion. In Amazon’s latest quarter, revenue and earnings continued their steady climb. Revenue rose 12% to $167.7 billion, and operating income rose 35% to $18.2 billion.
In the last 10 years, Amazon’s stock price has soared more than 590% to the current price of $216.48. But year to date, the stock has traded down 2%. This has probably been driven by macro-economic concerns as well as Amazon’s increasing capital expenditures. While both concerns are valid, my view is that the long-term outlook for Amazon and its stock remain extremely bullish.
Growth opportunities at Amazon
Amazon’s core e-commerce business continues to perform well, with this year’s famous Prime Day being the biggest one ever. The growth here will rely on the company continuing to improve its network, making it faster and more efficient. Already, Amazon is delivering to Prime members at faster speeds than ever. The company is working to further improve this while also working on faster deliveries to smaller cities and rural communities.
In Amazon’s advertising business, growth also continues to surpass expectations. In fact, advertising revenue in the second quarter increased 22% to $15.7 billion. With Amazon, advertisers have good access to consumers, thus making advertising with Amazon a high return-on-investment proposition.
Finally, Amazon Web Services (AWS) is Amazon’s cloud computing services business. It’s the area that has the highest growth profile, and the one that’s receiving the most investment dollars from the company. In the latest quarter, AWS revenue increased 17.5% to $30.9 billion. Today, the segment is operating at an annual revenue run rate of $123 billion. There’s much hype for this segment, which has high operating margins of 33%. In fact, management has said that AWS is seeing more demand than the company can handle right now.
Amazon is beating estimates
As a reflection of the strong performance that Amazon continues to post, we can look to its strong record of beating expectations. In at least the last eight quarters, the company has blown past earnings per share (EPS) expectations by an average of 27%.
Yet, the stock price has been pretty weak in the last year, despite the fact that many studies have documented the strong correlation between positive earnings surprises and stock price performance.
The bottom line
Amazon stock is not cheap — it trades at 32 times this year’s consensus earnings estimate and 28 times next year’s. The corresponding growth rates are good. This year, earnings are expected to grow by 22%, and next year, by 14%. But it’s the long-term growth from AWS that is the most exciting part of Amazon’s story.
I’m watching the stock with the intention of buying if and when it dips 10%.
