Goldman: Groceries Could Launch Amazon Into The Stratosphere

The firm added shares of Amazon to its "Conviction List," this morning, saying the company currently represents, "one of the best risk/reward propositions" in the tech sector.

Goldman is particularly bullish on Amazon's investment in AmazonFresh, its grocery delivery service currently available in Southern and Northern California, and Seattle.

Goldman says AmazonFresh, "could prove a major catalyst for revenue growth and long-term profitability at Amazon." The firm says Fresh is a chance for Amazon to increase its sales volume, adding that online sales in grocery currently comprise just 0.5% of the $1 trillion industry.

New players have also made significant gains in the grocery space before. Goldman points out that since 1996, Walmart has grown grocery sales from 0% to 56% of its total sales. Goldman notes that since 1998, grocery has represented 64% of Walmart's total growth each year.

Bringing Fresh to up to 25 cities over the next five years could require investment of up to $1 billion per year, Goldman said. But the firm says Amazon has one of the best track records in the market in getting high returns on its investments, also noting that, "ongoing investment in fulfillment and infrastructure will widen Amazon's competitive lead."

Goldman said that Amazon's network of trucks for AmazonFresh could also improve margins in its last mile fulfillment network.

Goldman said that from current levels, Amazon shares have about 20% upside.

Shares of the tech giant have underperformed the S&P 500 over the last year. They were trading up 1.5% Wednesday.