It’s the kind of bullish consensus that might raise alarm bells for some contrarians, especially after the shares surged 81% last year, the most since 2015. The stock was among the hardest hit of the big tech firms in last week’s declines, although it fared better than Apple Inc. Amazon shares rose about 1% on Monday.

Confidence is high in Amazon’s profit outlook, partly because of AI tailwinds. The average analyst price target suggests upside of roughly 25%, which would return Amazon close to its all-time closing high from July 2021. Among megacaps, only Nvidia Corp. boasts a better return potential, as the Street sees it.

“I think this year you’ll get Amazon breaching its previous high,” said Andrew Slimmon, who holds the shares in portfolios he oversees at Morgan Stanley Investment Management. “The stock is not expensive relative to its history, it is beating numbers, and consensus estimates are rising. That’s a recipe for a bull market.”

Amazon has gone the longest among the so-called Magnificent Seven without posting a record, in contrast to Apple, Microsoft Corp., and Nvidia, all of which set new highs last year. The seven largest stocks in the S&P 500 Index by market value — a group that also includes Google parent Alphabet Inc., Tesla Inc. and Facebook owner Meta Platforms Inc., have mostly faltered in January, after driving the market’s strength last year. Amazon’s 3.3% drop is among the steepest of the group.

Read more: Magnificent Seven Loses Importance as Soft Landing Means Risk On

Analysts recommend Amazon for a slew of reasons, but most cite better growth trends and improving margins, especially as the company reaps the benefit from investments it made during the pandemic. Artificial intelligence is also expected to lift demand for its cloud business.

Consensus expectations for Amazon’s net 2024 earnings have risen 18% over the past three months, according to data compiled by Bloomberg, even as the view for revenue has held flat. Amazon’s most recent results, in October, showed robust growth in both earnings and sales, in particular its cloud business.

Valuation Appeal

The improving profit picture has helped boost Amazon’s appeal on a valuation basis. The stock trades at 32 times estimated earnings, and while that’s above the multiple of 23.9 for the Nasdaq 100 Index, it’s well below Amazon’s 10-year average of 57.

Needham & Co. touted valuation as a selling point. The firm named Amazon its second-favorite — after Alphabet — for 2024 among the former FAANG group of companies, which also include Meta, Apple and Netflix Inc.

Its analysis “concludes that investors are getting AMZN’s core e-commerce business for free,” analyst Laura Martin wrote last month.

Amazon is a perennial top pick for analysts. Goldman Sachs, Mizuho Securities, and Wells Fargo & Co. all named it as such at various points in 2023. While those bulls have been rewarded over the long-term, buy ratings don’t necessarily translate into superior performance: Amazon’s roughly 80% gain over the past five years compares with a 150% advance in the Nasdaq 100 for the same period.

Andrew Huang, a portfolio manager at Evercore Wealth Management, is among those expecting improving margins and cloud demand to support the stock in 2024, while a low valuation relative to its history diminishes downside risk.

However, he said, the near-unanimous bullishness could be a contrarian indicator.

“If everyone is expecting another good year after last year’s rally, that could mean it is a time to trim your position, because the stock could take a hit on even a slight disappointment,” he said.

Tech Chart of the Day

Apple shares have dropped about 6% to start the year, with a pair of analyst downgrades underlining concerns about the strength of the company’s key iPhone business. Both Piper Sandler and Barclays lowered their view on the stock, resulting in a consensus rating — a proxy for the ratio of buy, hold, and sell views on the stock — of 4.04 out of five, the lowest for the stock since October 2020.

Top Tech Stories

• Apple’s iPhone sales slump in China is deepening and the company is likely to see volumes decline further this year, according to Jefferies analysts led by Edison Lee.
• Elon Musk’s drug use has worried executives and board members at businesses he runs, the Wall Street Journal reported, citing unidentified people familiar with the billionaire and the companies.
• Samsung Electronics Co. likely managed to stem revenue and operating profit slides during the fourth quarter, affirming expectations that chip and electronics demand will gradually recover in 2024.
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