In a year marked by the relentless rally of Amazon (NASDAQ: AMZN) shares, the e-commerce giant’s stock price has surged to unprecedented heights, fueled in part by the soaring demand for artificial intelligence (AI) technologies.
The emergence of generative AI bots, exemplified by ChatGPT, has played a pivotal role in driving this remarkable ascent.
On Wednesday, September 13, AMZN continued its upward trajectory and soared to a fresh 52-week high of $144.85.
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The move was likely propelled by a bullish report from Morgan Stanley (NYSE: MS) analysts, who foresee a further upside potential of as much as 60% in the company’s stock price.
Morgan Stanley’s bullish case for Amazon
Although Amazon’s 2023 stock market ascent is already impressive, Morgan Stanley strategist Brian Nowak said there may be additional space for growth.
Notably, the analyst outlined three key drivers that could lead to further improvement in Amazon’s retail profitability, including increased efficiency in shipping and fulfillment cost per unit, content cost discipline, and better first-party (1P) merchandise margins.
These factors have enough potential to elevate Amazon’s profit margins back to pre-pandemic levels and boost earnings per share (EPS) to $5 or higher. For comparison, Amazon’s latest quarterly report revealed an EPS of $0.65.
At the moment, AMZN trades at an approximate price/earnings-to-growth (PEG) ratio of 0.6, representing “a ~15% discount to its median tech peer group.”
“As shown, valuing AMZN at a .7X PEG (in line with mega cap tech) would imply a ~$160 share price if this efficiency upside and higher earnings comes into view.”
– Nowak wrote in a note.
4 factors that could propel AMZN price to $230
Furthermore, the e-commerce and tech behemoth deserves a higher PEG ratio than its tech competitors for four main reasons, said Nowak, including a stronger growth runway across several business lines, rising value of its Prime subscriber base, robust potential for margin expansion, and wider shareholder base across more industries.
As a result, these elements could lead to a higher PEG for Amazon, which, if reaches 0.7-1x range, “would imply a ~$160 – $230 share price within the next 12-18 months (potentially ~62% upside),” the analyst concluded.
AMZN stock price analysis
At the time of publication, shares of Amazon were standing at $144.85, the highest level since April 2022.
Over the past week, the stock gained over 6% and around 4.7% on the monthly chart. Meanwhile, its year-to-date surge now stands at nearly 70%, outperforming the broader S&P 500 index’s gains of 16.8%.
In its latest client note, Morgan Stanley reiterated its ‘Overweight’ rating and price target of $175 for AMZN, indicating a possible growth room of over 20% from the current price.
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