Beth Kindig is the CEO and Lead Tech Analyst for the I/O Fund and delivers weekly in-depth tech stock analysis to her free newsletter subscribers. Sign up here to receive free weekly stock tips. I/O Fund has a cumulative 3-year audited return of 47%, beating Ark and the majority of Wall Street funds over four audit periods in 2020, 2021 and 2022.
Amazon shares have climbed to fresh all-time highs following a double beat in the last earnings report. The company is on the verge of joining the $2 Trillion Club, driven by a 4-percentage point accelerating in AWS to 17% YoY growth combined with strong 25% growth in advertising revenue. AWS surpassed a $100 billion annualized run rate in the first quarter, with managementE-commerce is what Amazon is famous for, however, it’s AWS and advertising that are the core growth engines.
Growth has cooled rather dramatically since early 2022, where AWS was reporting growth rates above 30%, but at a $100B+ scale, AWS is driving the largest absolute dollar growth across the entirety of Amazon’s businesses. We’re closely tracking Big Tech’s capex plans for 2024 and how this will flow downstream to AI hardware companies. We shared more than half a dozen reports and pre- and post-earnings updates on a handful of AI beneficiaries with our premium members. Learn moreAdvertising is Amazon’s fastest growing segment with 24% YoY growth to $11.8 billion in revenue in Q1 and its rapidly scaling.
By putting ads directly in front of an estimated 150+ million viewers, Amazon can benefit both from ad revenue and incremental revenue from subscribers who pay the ad-free upcharge. Bank of America analysts estimate that Amazon couldin $3 billion in advertising revenue this year from Prime Video, potentially up to $5 billion when including those users who pay the additional charge. Morgan Stanley is a bit moreabout Amazon’s new initiative forecasting $3.3 billion this year, $5.
Combined, Amazon’s two fastest growing segments could be viewed as worth at least $1.26 trillion, while also driving significant gross margin and operating margin expansion. When combined with Amazon’s remaining e-commerce and subscription businesses, which could be worth $1.2 trillion at a 2.5x multiple on an estimated ~$480 billion in revenue in 2024, there is room for Amazon’s valuation to expand towards the $2.5 trillion threshold.
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