Why Is Amazon Stock So High?

Why Is Amazon Stock So High? Amazon (AMZN) has its hands in dozens of pies. It seems like there is nothing this one-time dedicated bookseller doesn’t do and delivery in two days for its Prime members.

In the world of COVID, a company that offers goods and groceries to your front door, sometimes overnight, is bound to get extra business and attention from the investing world.

This combination of factors can drive the price up. Remember, the stock market sets share prices at what investors will pay for them – not the ACTUAL value of the company.

Is Amazon A Good Stock? 

Amazon grew from humble beginnings in 1994 to an industry leader. Today, the company operates in several segments – North America, International, and Amazon Web Services (AWS). It also owns Whole Foods Market.

Amazon has a strong online presence as well as physical locations, where it sells its own products as well as those of other companies. It also manufactures media devices and develops content. 

Competition is fierce for Amazon. Technology has ensured that just about anything anyone wants is a click away, but Amazon thrives through the convenience of its services, the security of its platform, and the power of its Prime program for enveloping users into the Amazon ecosystem.

Amazon is branching into a variety of different markets, regions, and services as well as making some big investments. There is risk in expansion, and Amazon has not always found success on the bets it makes, but that is the power of diversification, as any investor knows.

Does this make Amazon a good stock? That depends on what you think will happen next. The question isn’t whether Amazon is a good company. What matters is whether you can open a position that can net you the return you want in the timeframe you prefer. 

Why Is Amazon Worth So Much? 

Analysts are putting a price target on Amazon that is as high as $3,800, which is around 25% higher than the stock’s current value.

The average analyst price target is $3,102.76 (range $1,840 to $3,800), but keep in mind that Amazon traded as low as $1,626 in the past 52 weeks and as high as $3,344.

In fact, it hit a one-year low right before COVID got bad in the US (March 16). Until that point, the stock had been effectively moving sideways.

The only thing that changed was that the world was hit with a pandemic of staggering implications.

Amazon’s share price soared in response. Its first quarter revenue grew by 26%. As of the writing of this article, the company’s second quarter results have not been released. Those results could be surprising. Amazon is making some big investments.

“From online shopping to AWS to Prime Video and Fire TV, the current crisis is demonstrating the adaptability and durability of Amazon’s business as never before,” said Jeff Bezos, CEO and Founder of Amazon.

“If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”

Furthermore, Amazon was making other bold moves before COVID. The e-commerce titan had been making a variety of investments on its infrastructure and pushing one-day shipping as a competitive differentiator.

There are rumors that Amazon bought self-driving vehicle company Zoox for $1.2 billion and spent $700 million investing in Rivian, an electric truck company.

Amazon is buying 100,000 fully electric vehicles from the latter to use in delivery services. Amazon also bought PillPack, an online pharmacy, for almost $1 billion. Time will tell whether these investments pay off.

Why Is Amazon Stock Higher Than Apple? 

Amazon’s stock is higher than Apple’s stock because there are investors who believe that this stock is going to continue to climb.

They are bullish because of COVID and the demand the pandemic is creating for home delivered goods.

Apple’s products are popular but the demand for them isn’t swelling right now.

Is Amazon Stock Overvalued? 

People have been saying that Amazon is overvalued since its share price started to creep up, driven on momentum from investors that believed the company’s revenues would increase as more people turned to online shopping and digital media while in quarantine, lockdown, and stay-at-home orders were in effect.

Those people were wrong.

While Amazon may have been overvalued, that doesn’t mean that the share price would not become even more inflated as investors look to capitalize on the continued impact of COVID.

The Amazon bulls say that demand for all that Amazon does is only going to increase, especially in the United States. “With the Covid-19 crisis ravaging parts of the U.S. that had initially been largely unscathed,” explains analyst Brian White of Monness Crespi Hardt, “we believe more people and organizations will turn to Amazon in a bigger way.”

White put a price target on Amazon of $3,500 – and he is not alone in his bullishness. Another investor, Bill Miller of Miller Value Partners, said in May that he expects Amazon’s share price to double in three years. 

Why Is Amazon Stock So High: The Bottom Line

Amazon does have its bears. Famous investor David Tepper, founder of Appaloosa Management, doesn’t believe the hype. He said that just because Amazon is in a position to benefit from the current situation, that does not mean that the stock isn’t already fully valued.

As an investor who may be considering adding Amazon to your portfolio, take the time to do your due diligence and consider whether you believe the stock’s value will increase enough to make it worth your while as it relates to your target investment timeline.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.