Amazon Stock: Time to Bail or Time to Buy?

The **S&P 500 **index is still close to all-time highs, despite current geopolitical upheaval. However, under the hood, there has been significant pain for investors not invested in the hottest artificial intelligence (AI) stocks over the last few years. Even Amazon (AMZN 1.45%) has significantly underperformed the index over the last five years, despite benefiting from the AI boom.

With the stock stuck around $200 – close to where it traded in 2021 – investors are likely growing impatient with the e-commerce and cloud computing giant. Is it time to bail on Amazon? Or is now the perfect time to buy the stock for your portfolio?

Image source: Amazon.

Tremendous AI demand, margin expansion

AI demand has lifted all players in the cloud computing space, including Amazon. Amazon Web Services (AWS) saw 24% revenue growth last quarter and will likely see accelerating growth in the year ahead. Over the next decade, Amazon management believes AWS can grow from $129 billion in revenue to $600 billion by 2036, an impressive feat for the massive infrastructure player.

Investors are nervous about Amazon’s heavy investments that are hurting cash flow today. However, these have historically led to strong returns on investment and should help Amazon’s earnings grow significantly in the years ahead.

What’s more, Amazon’s retail division is running smoothly right now. It grew revenue by 10% year over year in North America last quarter and has profit margins of 6.9% over the last 12 months, with plenty of room for continued expansion. Advertising revenue, third-party seller services, and subscriptions are growing quickly, with all three offering high margins that should improve Amazon retail’s overall profit picture.

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NASDAQ: AMZN

Amazon

Today’s Change

(-1.45%) $-3.04

Current Price

$207.10

Key Data Points

Market Cap

$2.2T

Day’s Range

$206.68 - $209.30

52wk Range

$161.38 - $258.60

Volume

2.3K

Avg Vol

49M

Gross Margin

50.29%

Is the stock cheap?

Combining the margin expansion story with the massive revenue opportunity at AWS, it becomes clear that Amazon has a nice earnings growth story for the next decade. AWS is becoming a larger piece of the pie and has fantastic operating margins of 35%, which are much better than the retail division.

Revenue of $638 billion last year could grow to $1 trillion or more within a few years’ time, with plenty of room to expand to an even larger base over the next decade. Right now, Amazon’s consolidated operating margin is 11.8%, a record high. If that figure can expand to 15% while revenue grows to $1 trillion, Amazon will be generating $150 billion in operating earnings a few years down the line.

Given its market capitalization of $2.2 trillion, Amazon’s stock looks like a good value. Stay patient with this stock; long-term investors will be rewarded by holding Amazon over the next decade.