One Wall Street analyst made the case that Amazon can save billions of dollars, thereby improving its bottom line.
Shares of Amazon (AMZN 1.66%) climbed higher on Friday, adding as much as 3.1%. As of 2:27 p.m. ET, the stock was still up 1.6%.
The catalyst that sent the e-commerce and cloud computing titan higher was a bullish take from a Wall Street analyst.
Billions of dollars to the bottom line
JMP Securities analyst Nicholas Jones maintained an outperform (buy) rating on Amazon stock while setting a price target of $265. That represents additional upside potential of 46% compared to Thursday’s closing price. The analyst believes Amazon can cut its expenses by more than $20 billion each year by making a few changes to its business.
Jones suggested that strategic use of autonomous technology and replacing its vehicles with internal combustion engines (ICE) with electric vans from Rivian Automotive will dramatically cut Amazon’s delivery costs. The analyst estimates that fuel expenses make up between 25% and 30% of the cost per mile of the company’s middle- and last-mile deliveries, and relying on electric vehicles will cut per-mile energy costs by half over the long term.
As Amazon continues to swap out its current ICE vehicles for electric, it could potentially save as much as $7 billion annually over the short term, according to the analyst.
Amazon already has 15,000 Rivian electric delivery vans in its fleet, with plans to increase that number to 100,000 by 2030.
Is Amazon stock a buy?
Recent improvements in the economy could also benefit Amazon. Waning inflation and lower interest rates will give consumers greater spending power and additional discretionary income, some of which will be spent on Amazon’s online retail site. It will also spur additional spending by businesses, which will no doubt increase spending on Amazon Web Services (AWS), the company’s cloud infrastructure service. The rebounding economy is also providing fuel for Amazon’s digital advertising business, which is the company’s fastest-growing segment.
Let’s not forget the accelerating adoption of artificial intelligence (AI), which will positively impact all of Amazon’s primary businesses. While estimates vary, generative AI is expected to be a $1.3 trillion market by 2032, according to Bloomberg Intelligence — and that’s one of the more conservative estimates.
Amazon stock is currently selling for less than 3 times next year’s sales. In light of the myriad opportunities to thrive, that represents a compelling opportunity.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
