A Bull Market Is Coming: 2 Big Reasons to Buy Amazon Stock Right Now

The 2022 bear market was brutal for Amazon (AMZN -2.69%) shareholders. The e-commerce juggernaut’s stock price was cut in half as slowing sales, rising costs, and a waning appetite among investors for growth stocks all took a toll.

Fortunately, 2023 so far has been much kinder to Amazon and its shareowners. The online retail king’s shares are already up more than 15% year to date.

Investors are growing more optimistic that the worst is already behind Amazon, and they’re betting that its powerful, long-term growth drivers will fuel a recovery that drives its stock price to new highs.

Here are two reasons why they may be right.

1. Amazon’s advertising business is gaining market share

The ad industry is in the midst of a slowdown. Inflation concerns and fears of a potential recession are driving many companies to pare back their marketing investments. Yet despite these challenges, Amazon’s ad business is growing at an impressive clip.

Amazon’s ad revenue rose 19% to $11.6 billion in the fourth quarter. That compared favorably to that of fellow digital ad giants Alphabet and Meta Platforms. Google’s and Facebook’s parent companies both saw their ad revenue fall by roughly 4% during that same period.

Amazon is gaining market share because it enables marketers to target consumers when they’re most likely to make a purchase. Millions of people start and end their shopping journeys on Amazon’s websites. Its ad platform, in turn, is quickly becoming an indispensable source of customers and sales for many online businesses.

At the same time, Apple‘s privacy-related changes have dented Meta’s ad targeting abilities by making it easier for iPhone users to opt out of having their web and mobile app usage tracked. By reducing the amount of data Meta can collect, Apple is also reducing the value that the social media titan can deliver to advertisers.

Meanwhile, Alphabet is now being forced to wage a defensive battle against Microsoft in its core internet search market. The software colossus recently unveiled a new AI-powered version of its Bing search engine, which has been met with much fanfare. Microsoft CEO Satya Nadella believes artificial intelligence will help to usher in “a new paradigm for search.”

If he’s right, the new technology, which delivers chat-like answers rather than just links to websites, could disrupt the search advertising industry and drive more ad business to Amazon.

During periods of economic turbulence, marketers prioritize platforms that deliver the highest and most transparent returns on their ad spending. Right now, that’s Amazon, and it’s likely to continue to be for the foreseeable future.

2. Amazon Web Services’ growth may be delayed, but not derailed

Amazon’s cloud computing division has also continued to grow at a solid pace during the current economic downturn. Amazon Web Services, or AWS, saw its revenue rise by 20%, to $21.4 billion, in the fourth quarter. 

However, some investors were spooked when Chief Financial Officer Brian Olsavsky said during the company’s earnings call that AWS’ revenue growth slowed to “mid-teens” percentages in January. That’s understandable as AWS is Amazon’s most profitable business segment.

But the slowdown is largely due to companies seeking to cut costs ahead of a possible recession, and Amazon is actively working to help them do so. By helping its customers save money, Amazon is proving one of AWS’ core benefits — the ability to easily ramp up and down cloud computing usage to match economic conditions — to be true. It’s also a smart business move as it will no doubt strengthen customer loyalty metrics among Amazon’s cloud clients. And when the economy eventually strengthens, these customers are likely to ramp up their spending on AWS once again.

Moreover, Amazon CEO Andy Jassy said that as much as 95% of global information technology spending is currently allocated to on-premises locations. Jassy believes most of these IT expenditures will shift to the cloud over the next 10 to 15 years, due in part to cloud computing’s cost, flexibility, and security advantages. If he’s correct, AWS — as the leading provider of cloud infrastructure services — has a long runway for expansion still ahead.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Joe Tenebruso has the following options: long January 2025 $100 calls on Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.