Back in 2019, Warren Buffett bought Amazon (NASDAQ: AMZN) stock for his portfolio. His purchase prices were between $1,500 and $1,819, with an estimated average price of around $1,660 per share.
Since then, Amazon shares have had a great run, making Buffett a lot of money. However, I think there’s a long growth runway ahead for the stock. With that in mind, here’s a look at four reasons I’d follow Buffett and buy AMZN stock for my portfolio today.
Online shopping powerhouse
The first thing that excites me about Amazon is the long-term potential in e-commerce. This market is projected to grow by nearly 10% per year between now and 2028 and Amazon is the industry leader.
Now, Amazon is experiencing a few challenges in this area of its business right now. Like most retailers, it’s suffering from supply chain issues, product shortages, labour shortages, and higher costs. However, I don’t expect these issues to last forever.
Last week, CFO Brian Olsavsky said Amazon is now in a better position to handle labour and supply chain challenges. “We do see the sun coming out and getting better here over the next number of quarters,” said Olsavsky.
Meanwhile, Amazon is shortly about to hike its Prime membership prices. In the US, annual membership will rise from $119 to $139. Given that Amazon has over 200m Prime members, this should result in a nice boost to the top line.
Cloud computing champion
I also like the potential in the company’s cloud computing division, Amazon Web Services (AWS), which provides remote computing, storage and database services. Amazon is seeing very strong growth here right now.
Last quarter, revenue from AWS came in at $17.8bn, up nearly 40% year-on-year. Meanwhile, operating income from this segment amounted to $5.3bn. This shows that AWS is a very profitable business for Amazon.
Digital advertising monster
Amazon is also now a major player in the digital advertising space. Indeed, it’s having so much success here that it’s now the third largest player in the US market, behind Google and Facebook. Last quarter, revenue from advertising amounted to $9.7bn, up 32% year-on-year.
Artificial intelligence leader
Finally, a fourth reason I’m bullish on Amazon is that the company is one of the biggest players in the artificial intelligence (AI) space. Today, the company has mature AI applications across online shopping, warehousing, logistics, and more. According to GlobalData, Amazon is among the companies best positioned to take advantage of future AI disruption in the technology industry.
I’d follow Buffett and buy Amazon stock
Of course, while Amazon has a lot of going for it, there are risks to consider. One is the stock’s valuation. Currently, Amazon has a forward-looking P/E of about 66, which is quite high. If growth slows, the stock could fall. It’s worth noting that Amazon stock has had some big pullbacks in the past.
Another is competition from other tech companies. In the cloud space, Amazon has competition from the likes of Microsoft, Oracle, and Alphabet.
All things considered however, I see a lot of investment potential here. That’s why I’d follow Buffett and buy the stock.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Alphabet (C shares), Amazon, and Microsoft. The Motley Fool UK has recommended Alphabet (A shares), Amazon, and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
