Why Amazon Shares Soared Friday Morning

Actions of Amazon (AMZN 2.35%) it 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 an upbeat interpretation from a Wall Street analyst.

Billions of dollars for the bottom line

JMP Securities analyst Nicholas Jones maintained an outperform (buy) rating on Amazon shares while setting a $265 price target. This represents an additional 46% upside potential from Thursday’s closing price. The analyst believes that Amazon can cut its expenses by more than $20 billion each year by making a few changes to its business.

Jones suggested that the strategic use of autonomous technology and the replacement of its internal combustion engine (ICE) vehicles with electric vans from Rivian Automotive will dramatically reduce Amazon’s shipping costs. The analyst estimates that fuel expenses account for 25% to 30% of the company’s cost per mile of mid- and last-mile deliveries, and the EV base will cut energy costs per mile in half over the long term.

As Amazon continues to replace current ICE vehicles with electric ones, it could save up to $7 billion annually in 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. Lower inflation and lower interest rates will give consumers more 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 companies, which will undoubtedly increase spending on Amazon Web Services (AWS), the company’s cloud infrastructure service. The rebounding economy is also fueling 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 core 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 currently trades for less than 3 times next year’s sales. Given the myriad opportunities to thrive, this is a compelling opportunity.