Amazon Stock Looks Like a Buy

For Q4 2024, Amazon AMZN reported revenue growth of 10% to $187.8 billion, and EPS growth of 86% to $1.86 compared to last year. This are impressive numbers consider the scale of the company.

The stock crashed 4% on Friday despite the strong report, likely due to the miss in AWS growth, and the unexpected $100+ billion capex guidance for 2025. I am personally not worried at all, since all high-margin business lines are growing fast at 10% or more annually, especially AWS, which could not keep up with the demand due to constrained capacity. This is why I believe the large capex in 2025 is justified because the return on investment will be quite high.

Here are some highlight for this quarter:

All high-margin business lines continue to grow fast, with the third party seller business, advertising, AWS grew 9%, 18%, and 19% respectively.
Continue to add automation and robotics throughout the delivery network, this will help continuously improve the profit margins.
Launched Trainium 2 custom AI chips that are 30% - 40% more price performant than GPUs (mostly Nvidia GPUs). Other companies like Adobe, Databricks, poolside, and Qualcomm has also participated in testing this chip and the results are promising.
Stock based compensating dropped 8% to $22 billion

The estimated fair price of Amazon stock is about $258 per share using the DCF model, indicating a 12.7% CAGR in the next 5 years. As usual, I run Amazon valuation using operating cash flow because of the significant capex. I do think the growth rate will likely slow down as Amazon continues to grow larger, so I tend to use conservative numbers for the calculation:

Latest TTM Operating cash flow (OCF) $115.87 Billion
OCF annual growth rate of 15% (5YR AVG 26.11%)
Share dilution of 1.27% per year (5YR AVG 1.27%)
Future Price/OCF ratio of 20 (5YR AVG 25)
Discount rate of 10%

I think Amazon stock is undervalued after the price decline, I personally plan to continue investing more into this company going forward.

You can also see all my past Amazon stock analysis using this link.

Holdings Disclosure

SoloFIRE AMZN ownership: 7% of portfolio
SoloFIRE AMZN Average Cost Paid: $112.48
Holding time: 3 years

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DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.