NVDA - Amazon's Q1 Outperformance Highlights A Triple Reinforcement To FCF Growth

2024-05-01 10:31:55 ET

Summary

• Amazon's Q1 outperformance continues to showcase strong progress in unlocking incremental profitability sustained by ongoing AI share gains, improvements in cost to serve, and increasing penetration into high-margin advertising opportunities.
• Specifically, AWS has become a $100+ billion annualized revenue run-rate business, with AI contributions exceeding the multi-billion-dollar mark. Meanwhile, the majority of workloads remain on-premises, highlighting significant growth headroom ahead.
• Amazon also benefits from a competitive advantage in advertising through both retail media and streaming TV platforms, as sponsored ads on the latter ultimately reinforce Prime engagement on amazon.com.
• Taken together with continued cost to serve improvements in core commerce and fulfillment operations, Amazon remains well-positioned on a sustained trajectory of long-term growth and FCF expansion underpinning incremental valuation upside potential ahead.

Since our last coverage , Amazon's stock ( AMZN ) has gradually grown past both our $182 price target and its 2021 peak towards a new all-time high before paring some of its gains in April. The stock has largely maintained a consistent, gradual uptrend, diverging from the outsized kind of appreciation observed at its mega cap peers that have also been key beneficiaries of the AI rally.

Admittedly, Amazon has found itself in a dimmer corner of the AI spotlight. Yet its results continue to demonstrate robust share gains with accretive growth stemming from AI-driven TAM expansion. Specifically, AI contributions to AWS now amount to a multi-billion-dollar annualized run-rate, with continued growth reacceleration highlighting its benefit from secular tailwinds ahead....

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