A Wall Street analyst made the case that Amazon can save billions of dollars, thereby improving its bottom line.
Actions of Amazon (AMZN 1.86%) climbed higher on Friday, adding as much as 3.1%. At 2:27 pm ET, the stock was still up 1.6%.
The catalyst that sent the e-commerce and cloud computing titan higher was a bullish take by a Wall Street analyst.
Billions of dollars at the bottom
JMP Securities analyst Nicholas Jones maintained an outperform rating (buy) on Amazon shares while setting a price target of $265. That represents a potential upside of 46% compared to Thursday’s closing price . The analyst believes that Amazon can cut its expenses by more than $20 billion every year by making a few changes to its business.
Jones suggested that the strategic use of autonomous technology and to replace their vehicles with internal combustion engines (ICE) with electric vans from Rivian Automotive will drastically reduce Amazon’s shipping costs. The analyst estimates that fuel costs make up between 25% and 30% of the cost per kilometer of the company’s mid- and last-mile deliveries, and relying on electric vehicles will reduce energy costs by mile to half in the long run.
As Amazon continues to swap its current ICE vehicles for electricity, it could save as much as $7 billion a year in the short term, according to analysts.
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. Declining 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 stimulate additional spending by businesses, which will undoubtedly increase spending on Amazon Web Services (AWS), the company’s cloud infrastructure service. The recovering economy is also providing fuel for Amazon’s digital advertising business, which is the company’s fastest-growing segment.
Let’s not forget the accelerated adoption of artificial intelligence (AI), which will have a positive impact on 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’s stock is currently trading for less than 3 times next year’s sales. Given the myriad of opportunities to thrive, this represents a compelling opportunity.
John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, 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.