AMZN Stock Could Skyrocket
Consumer numbers came out on Tuesday and they couldn’t have been better for Amazon.com, Inc. (NASDAQ:AMZN). As America’s largest retailer, an increase in consumer spending can only mean good things for AMZN stock.
The Department of Commerce announced that personal spending increased by one percent in April, the biggest increase in nearly seven years. (Source: “U.S. Consumer Spending Climbed at Fastest Pace in Nearly Seven Years,” The Wall Street Journal, May 31, 2016.)
Once upon a time, that economic data might have caused us to look at Wal-Mart Stores, Inc. or some other brick-and-mortar. But that era is dead and gone. Amazon surpassed Wal-Mart in market capitalization last year.
So when consumer spending has its biggest one-month increase since August 2009, investors should look to Amazon stock. It is the new King of Retail.
In any case, the one percent increase is a really good sign for economic growth. More than two-thirds of U.S. gross domestic product comes from shopping. Buying cars, clothes, and curtains is what fuels the American economy.
However, April was the first month in nearly half a year to show significant improvement in the economy. Consumers generally shop less during the winter months, but this year was especially bad. Even Christmas sales were a disappointment.
The shopping fever might also have something to do with rising incomes. For the first time in ages, personal income jumped 0.4% in a month. We haven’t seen this kind of growth in decades. Maybe it’s because Donald Trump is rising in the polls.
But considering the increase in personal spending, it’s definitely time for us to take another look at AMZN stock. This has been one of the most profitable investments of the last decade, regardless of when you bought it. It just keeps going up and to the right.
The company has been taking out its rivals one by one. Sports Authority, the mega-sized retailer of sporting goods, was the most recent victim. After filing for Chapter 11 bankruptcy protection, Sports Authority tried (and failed) to reform its business.
There’s no changing the reality of the situation. Amazon can out-price and out-deliver any brick-and-mortar company in existence. The firm is a well-oiled machine.
CEO Jeff Bezos has repeatedly stated that his goal is to offer customers a place where they can buy anything. He calls it “The Everything Store.” If you want a new pair of shoes, go to Amazon. Heck, if you want a sailboat, go to Amazon for that too.
That’s his grand plan.
But here’s the interesting part that most people don’t think about: selling everything also means selling to other businesses. We can’t think of Amazon as just a website because it has grown way past that. The company is also a major player in the information technology (IT) space.
Have you ever heard of “Amazon Web Services” (AWS)? It is a division of Amazon created (almost) by accident. The rapid growth of Amazon.com forced the firm to expand its infrastructure. In that process, the company realized how hard it was to scale up a business.
Don’t get me wrong, Amazon eventually solved that problem, but it made the company consider that other businesses might be facing similar issues. It decided to package its solutions as IT products. That’s how cloud computing really took off.
AWS, as it’s known to industry insiders, became a cash cow for Amazon. Any company that needed to store and process a lot of information started using AWS instead of buying expensive servers and paying for technicians. It just made sense.
Even giants like Netflix, Inc. use Amazon’s cloud computing services rather than paying for their own servers. It is one of the smartest decisions the company has ever made.
More to the point, AWS brings in the dough. It was solely responsible for pushing Amazon into the black over the last few quarters. That’s just a fact.
According to Gartner Inc, no other company comes close to Amazon in this sector. (Source: “Magic Quadrant for Cloud Infrastructure as a Service, Worldwide,” Gartner, May 18, 2016.)
Even if you added up the computing power of the 14 nearest competitors, they would still have only 10% of AWS’s computing power. It is the undisputed champion.
So when you combine those two tailwinds—higher personal spending and the success of AWS—you get a stock that can’t be broken. That’s why I’m still bullish on AMZN stock.