Will Amazon Stock Reach $1000?

Amazon Inc had a turbulent year in 2022. The share price declined by 50% on the backdrop of macroeconomic headwinds in the form of rising inflation. However, 2023 has started on a positive note with the share price being up by 15% this year.

The major question now is whether it is the right time to invest in Amazon stock and whether we can expect Amazon’s share price to touch $1000 in the coming years.

Will Amazon Stock Reach $1000? Bull Case Scenario

Amazon has come a long way from an online book retailer in 1994 and is now a leader in Amazon Web Services and the advertising industry. The company has become an e-commerce titan and also has a dominant market share in cloud computing with Amazon Web Services. It is also the third-largest ad platform, only behind Google and Facebook. The cloud computing market was worth $483.98 billion in 2022 and is expected to grow at a CAGR of 14.1% through 2030. AWS has a 34% market share in cloud computing, which is a major reason to invest in Amazon stock.

Despite declines in the e-commerce business in 2022, AWS was responsible for 100% of Amazon’s $12.2 billion operating income in 2022. Similarly, ad revenue also jumped 25% to $9.54 billion in the quarter.

Will Amazon Stock Reach $1000? Bear Case Scenario

Despite Amazon’s share falling 49% in 2022, the stock still looks expensive compared to its competitors. The decline in the last year had a severe impact on its free cash flows, as shown in the figure below:

*Source: YCharts

The above figure suggests that Amazon’s peers Apple, Alphabet, and Microsoft’s free cash flow positions are much better than Amazon’s. The company’s free cash flow has turned negative, and its price-to-free cash flow ratio is 239.67. Amazon’s performance in the downturn phase of the economy has made it a less reliable option.

Its recent decline also led to the price-to-earnings ratio soaring 66%, which is much higher than its competitors.

*Source: YCharts

Amazon’s P/E is the only one to rise last year, while other companies’ P/E have remained constant as stocks have increased in value. The combination of poor financial performance has led to Amazon’s P/E touching 77.1, which is much higher than its peers. For example, Alphabet has a P/E of only 19.5, Apple has 22, and Microsoft has around 26. So, Amazon is far more expensive than its peers even after declining 50% last year.

Can Amazon Stock Touch $1000?

So, we get back to the basic question: can Amazon’s share price touch $1000? While it was already around $3000 last year pre-split, a 20:1 forward stock split has bought the share price around $150, and then there is some decline in the share price.

The share price of around $3000 was a culmination of constant growth since 1999 when the stock split happened before 2022. Now, it will take another such leap in revenue and profit growth for the company to achieve the $1000 mark.

*Source: Tradingview

The earnings are expected to reach $5.11 by 2026. Assuming the far-end P/E ratio of 100, the share price will reach $511 by 2026. Hence, it will take at least a decade from today for the Amazon share price to reach $1000 if the company does not decide to split the shares in between.

Will Amazon Stock Reach $1000? Conclusion

Amazon indeed has great long-term opportunities in form of AWS and the advertising industry, while e-commerce business can be sloppy going forward. But in the current scenario, other tech options are available at better pricing than Amazon Inc.

Vineet Agarwal