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How You Can Avoid Paying $5,000 for Amazon Stock


Jun. 23 2020, Updated 7:37 a.m. ET

Amazon (NASDAQ:AMZN) is one of the technology stocks that’s in hot demand right now. At $2,675 as of the closing on June 19, the stock has risen 45% YTD (year-to-date). The stock is firmly on top of the FAANG group. Netflix, another high-flying FAANG stock, has gained 40% YTD. Apple has risen 19% for the year, while Facebook is up 16% for the year. Google parent Alphabet has gained 6.4% this year.

Last week, Needham analyst Laura Martin initiated coverage of Amazon stock. Needham started with a “buy” rating and a target price of $3,200. Notably, Needham’s target price indicates a 20% upside for Amazon from the current level.

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However, Martin thinks that Amazon is worth even more in the long term. The analyst expects Amazon’s stock price to hit $4,500–$5,000 in the longer term. According to Needham, one particular strength in Amazon is that it’s expanding into businesses that are more profitable than its flagship e-commerce business. The more profitable businesses include media services like the Amazon Prime Video, Prime Music, and game streaming platform Twitch.

Moreover, Amazon has expanded into the lucrative online advertising space. The revenue rose 44% year-over-year in the first quarter in Amazon’s others division, which houses the advertising business. The increase outpaced the 10% jump in Google’s advertising sales and a 17% increase in Facebook’s advertising sales. Notably, Amazon stock has risen 8.0% since the company released its first-quarter results. The results showed big growth in the advertising business.

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Buying Amazon stock at a discount

If Amazon’s stock price reaches $5,000 as Needham predicts, you have a chance to avoid paying the higher price if you act now. Investors scooping up Amazon shares now get them at an 87% discount to Needham’s long-term target price.

Investors have piled into Amazon stock. Amazon is one of the few companies that has benefited amid the coronavirus fallout. For example, Amazon’s e-commerce sales have been booming. More households have been shopping online to avoid contracting or spreading the coronavirus. The company has been expanding its fulfillment capacity by adding more warehouse and delivery jobs to cope with coronavirus-driven demand.

The coronavirus pandemic has also boosted the uptake of cloud computing services. Amazon is the world’s top cloud company with a 32% market share compared to Microsoft’s 18% market share. Cloud is Amazon’s most profitable business. Overall, the cloud contributed 78% of the total operating profit in the first quarter.

Notably, Amazon CEO Jeff Bezos has resumed the day-to-day running of the company to guide it through this pandemic. The second wave of the coronavirus could fuel even more online shopping and cloud demand, which could draw even more investors to Amazon stock.


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