A few weeks after Apple, Amazon became on August 4 the second publicly traded U.S. company to reach a $1 trillion market value. Its share price reached an all-time high of $2,050.50 before going back to $2,039.51 by market close. Since January, the stock has gained more than 70%.
And analysts are still telling investors to buy shares. Of the 47 analysts with ratings on Amazon, 96% say investors should keep accumulating the shares, according to FactSet. In comparison, Apple has a buy rating from "only" 62% of analysts.
Analysts at Jefferies sees continuing momentum in all segments and operating efficiencies across fixed costs, such as infrastructure and workforce. As Amazon continues to grow in scale, leverage in the model is beginning to show up in results. Investment in infrastructure (both fulfillment and AWS) and headcount decelerated in Q2 despite usage growth ahead of revenue growth as both AWS and retail achieved better infrastructure efficiencies. Continuing mix shift to 3P sales and solid ad revenue growth (at much higher margins) are helping profitability too. No question the company continues investing in many areas (international, AWS, ad business) and profitability will remain lumpy quarter to quarter but the Q2 print shows the power of the model at scale.
Morgan Stanley analyst Brian Nowak agrees: "We have increasing confidence that Amazon's rapidly growing, increasingly large, high-margin revenue streams (advertising, AWS, subscriptions) will drive higher profitability and continued upward estimate revisions," he said in a note to clients.
The menace from regulators
However, some analysts believe there are threats to continued growth: "there are two major risks here with Amazon: One is regulation, and one is competition," RBC Capital's Mark Mahaney on CNBC's "Power Lunch." He sees a risk from "two massive competitors" in the cloud business: Microsoft and Google.
Michael Graham, Canaccord Genuity analyst, added that Amazon is "doing a great job of developing new markets, like AWS", but also agrees there were competitive risks for the AWS cloud computing business, which he said could dislocate the stock in the short term.
Meanwhile, on the regulatory front, fears were raised when Donald Trump tweeted that Amazon is a "no-tax monopoly".
Few can argue that Amazon is domineering online sales. In addition, it is now moving aggressively into almost every industry. This leads some to predict the company will be the target of regulators. For Forbes, Amazon's market valuation is " what happens when you have a pour gasoline (economic growth) on a fire (a monopoly). The company "has to be/will be broken up".