3 facts you should definitely buy Amazon stock

Amazon's business was beginning to change into something investors had never seen before, and that was great news.

Amazon Web Services (AWS) is Amazon's cloud computing business. This product allows clients to rent compute space from Amazon and run workloads in the cloud. This will become a popular strategy, and customers will be able to scale up or down their computing capacity as needed. There is currently a huge demand as many companies are looking to create AI models to run their businesses more efficiently.

Unfortunately, AWS was unable to feel this demand throughout 2023, but competitors Google Cloud and Microsoft Azure felt it. However, that trend seems to be changing. Amazon has invested a large amount of money in Anthropic, a generative AI startup. Through this partnership, AWS will obtain generative AI tools provided on the AWS platform. CEO Andy Jassie stated on Amazon's first quarter conference call that “considerable momentum has been seen in the AI field, and revenue records of several billion dollars have already been raised.”

This was great news for investors, and it was already reflected in financial results. Q1 AWS'sNet sales increased 17% year over year、Operating profit increased by 84%I did it.

Another factor that has boosted AWSOptimization trend completedIt is. Last year, companies focused on reducing costs, including optimizing cloud computing spending. Now that this trend has been completed, the AWS business is growing with new workloads rather than a decline in revenue due to shrinking workloads.

AWS is Amazon's most profitable line of business and has been key to the company's success. However, other businesses are beginning to play that role as well.

AWS has been in the red for a while, but Amazon's commerce division has not always been successful. Amazon broke out of the hole created by the North American division in 2021 and 2022, when it was building a supply network. Amazon's international business has also been an unprofitable business for a long time, but this has also begun to improve. The first quarter was the first profitable quarter in this sector since 2021.

As a result, Amazon's cash generation has been strengthened, and momentum has begun to increase.

Over the past 12 months, Amazon has generated $50.1 billion in free cash flow (FCF). This is a significant improvement from the $3.3 billion FCF outflow in the first quarter of last year. However, the trends associated with this FCF are also interesting.

The first quarter was a historically weak quarter for Amazon, mainly due to huge spending in the fourth quarter. As a result, in the graph below, a relative peak is seen at the beginning of each year, and a significant decline continues thereafter. The same thing happened in 2024, but it was the first time in a long time that this decline did not go beyond the negative zone. Furthermore, the peak in the fourth quarter was a record high.

As a result, it is clear that Amazon's cash flow has improved and is sustainable, and investors are welcoming it. As Amazon's cash flow increases, dividends can begin and share buybacks can begin, which is great news for long-term investors.

However, the last fact about Amazon showed why it's still worth buying Amazon.

Since Amazon is still optimizing profitability, evaluation indicators centered on profit are useless. Therefore, I use the stock price-sales ratio (P/S).

Despite strong growth in the company's cash flow and significant improvements across the business, the company's valuation remains at the level of 2018 when stock prices fell after COVID demand subsided and before that.

This indicated that the stock was not unfairly overvalued, and that it might be reasonable to buy it today.

Considering Amazon's growth prospects and the increase in FCF, I think Amazon is a brand you should buy now. There are still many things that need to be changed in Amazon's business, and investors will benefit from buying and holding Amazon over the long term.