Why Amazon stock popped Tuesday

The e-commerce giant was dubbed a top internet pick by one analyst.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Amazon (NASDAQ: AMZN) climbed higher on Tuesday morning, as much as 6.1%. As of market close in the US, the stock was up 4.5%.

The broader markets rallied Tuesday, which no doubt added fuel to its rise, but another catalyst that helped send the e-commerce giant higher was some bullish commentary by an analyst.

So what

Despite the challenges wrought by current macroeconomic conditions, JPMorgan analyst Doug Anmuth noted "increasing interest in select names" across the internet group, as the recent market plunge has resulted in a number of compelling stock buys. One such opportunity is Amazon which remains his "best idea" in the sector. 

Even with the macro backdrop, unfavorable exchange rates, and the overall underperformance of internet-related stocks, the analyst expects Amazon to deliver acceleration of its year-over-year revenue growth, margin expansion, and slower capital spending. These will combine to drive "significant" free cash flow growth into next year.

In an unrelated note, Bank of America analyst Justin Post lowered his price targets on both Meta Platforms and Alphabet, citing increasing pressure from Amazon, as the company becomes a growing force in digital advertising. 

Now what

Both analysts make good points. Investors had largely written off any future growth by Amazon, following the company's significant e-commerce gains during the pandemic. However, Amazon CFO Brian Olsavsky said during the second-quarter earnings call that the company had lapped this high-growth period, which should lead to easier comps and higher year-over-year growth rates going forward. 

Additionally, Amazon is quickly becoming a powerhouse in digital advertising, as its ad revenue grew roughly 21% year over year during the trailing-12-month period, accelerating even as Alphabet's ad growth slowed and Meta's declined. 

Finally, Amazon is selling for a song, at roughly two times next year's sales, near the company's cheapest valuation in more than seven years.

Given Amazon's dominant position in e-commerce and cloud computing, growing prominence in digital advertising, and bargain-basement price tag, Amazon stock is a clear buy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, 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. Danny Vena has positions in Alphabet (A shares), Amazon, and Meta Platforms, Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, JPMorgan Chase, and Meta Platforms, Inc. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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