Up 125% since the start of 2023, Amazon (AMZN -1.45%) has been one of the hottest stocks around over the last two years. Yet, the question many investors want to know is whether Amazon is still a smart buy today.
I think it is. Here are three reasons why.
Image source: Getty Images.
Cloud services and advertising are its growth engines
Many investors may not appreciate that Amazon's signature business, its e-commerce segment, is no longer its chief growth engine. That segment is only growing at around 5% year over year.
In contrast, Amazon's cloud segment, Amazon Web Services (AWS), grew 19% to $26.3 billion in the second quarter. Similarly, the company's underappreciated advertising unit grew 20% to $12.8 billion.
Combined, those two units now drive around $150 billion in annual sales for Amazon. Granted, that's only about a quarter of the nearly $600 billion that Amazon generates every year, but $150 billion in sales is surely nothing to sneeze at.
Moreover, given how fast those units are growing, Amazon's overall revenue growth should remain high well into the future even if its signature e-commerce unit fails to produce double-digit growth.
Amazon has great management
Companies are nothing without the people. They are the dynamic ingredient that drive an organization forward. And no person is more important to a company than its chief manager -- its CEO. In the case of Amazon, the company is still only a few years away from a monumental shift. Gone is founder and former CEO Jeff Bezos. In his place, Andy Jassy has taken over.
Jassy, 56, has now been at the helm for more than three years, and I judge his tenure to be off to a great start. Granted, Amazon's stock sank during his first 18 months in charge, but much of that had to do with the pandemic slump that gripped the stock market during 2022.
Since the start of 2023, Amazon's shares have gained 125% thanks, in part, to cost-cutting measures put in place by Jassy. In summary, Amazon's current CEO is demonstrating the sound leadership that investors should look for in their stock holdings.
Net income and free cash flow at record highs
Finally, let's talk fundamentals. On this front, Amazon's strength should be easy to see. Amazon's net income and free cash flow -- two of the most important financial metrics for any company -- are nearing record levels.
AMZN Net Income (TTM) data by YCharts.
Both figures have bounced back for a few reasons. First, Amazon has scaled back some large-scale infrastructure investments, like its massive HQ2 center in Virginia. Moreover, many logistical investments made during the pandemic have now been fully implemented, including the company's shift to regional distribution hubs, which help the company deliver packages faster and with lower costs.
In sum, Amazon is more than just a stock that has soared in value. Its combination of high-growth businesses, sound management, and rock-solid fundamentals make it a stock worth owning now and well into the future.
