While the emergence of e-commerce was Amazon.com's (AMZN -2.99%) initial claim to fame, it was the rise of Amazon Web Services (AWS) that led the company to profitability. The cloud-computing segment is still generating the majority of the company's bottom line, but its success to date could be just the tip of the iceberg.

One analyst believes revenue from AWS could triple over the coming four years, giving the segment a market value of $350 billion.

A man working on a tablet producing a cloud computing image and various graphs.

Image source: Getty Images.

A compelling case

Jefferies & Company analyst Brent Thill ran some calculations after attending Amazon's re:Invent cloud-computing conference late last month. Thill sees AWS generating sales of $26 billion this year and reaching revenue of $71 billion annually by 2022, giving AWS a market value of $350 billion. Earlier this year, Amazon's market cap briefly topped $1 trillion, but it's currently worth about $766 billion. Thill made the case back in April that AWS would triple over five years, topping $60 billion by 2022, so his latest call is even more enthusiastic. 

A review of Amazon's most recent financial report shows that Thill's estimates, while ambitious, aren't that far-fetched. AWS has already produced revenue of $18.2 billion for the first nine months of this year. The segment would need to generate sales of $7.8 billion in the fourth quarter, representing year-over-year growth of about 52%, to hit Thill's forecast. To put that into context, AWS revenue grew 46% year over year in its most recent quarter.

Thill used announcements from the event as justification for his enthusiasm. Amazon said that the deals AWS is striking now are 3.5 times the size they were in 2017. Some of the examples are noteworthy. Biotech company Amgen is migrating "almost every process to AWS," while other big names are making the move as well. Both mortgage-processing specialist Ellie Mae and privately held Guardian Life have chosen Amazon. Korean Airlines, one of the top 10 airlines worldwide, is transitioning all of its cloud infrastructure to AWS in the coming three years. Thill said these deals are representative of the "bigger commitments" being made by cloud customers.

Cloud land grab

A look at this year's results thus far reveals the ongoing importance of AWS to the company's results. For the first nine months of 2018, AWS generated more than 59% of Amazon's operating profits, even though it contributed just 11% of total revenue. This is due to the segment's rich operating margin, which has reached 31% year to date, up from an already impressive 26% in the prior-year period.

That isn't to say that competition in the space isn't fierce. While Amazon is the undisputed leader, it has growing competition from two of the most well-known names in technology, Microsoft (MSFT -3.58%) and Alphabet's (GOOGL -5.04%) (GOOG -5.03%) Google. A report by research company Gartner earlier this year puts Amazon solidly ahead of its two biggest rivals. 

Cloud computing icons over a blurred background.

Image source: Getty Images.

While AWS dominates the space, Microsoft's Azure is growing more quickly, with revenue up 76% year over year for the third calendar quarter, while AWS increased 46% during the same period. Alphabet doesn't break out Google Cloud revenue, but earlier this year, CEO Sundar Pichai said the segment was a "$1 billion-per-quarter business." Based on publicly reported data, he believed it "is the fastest growing major public cloud provider in the world." If that's the case, both cloud units could be growing faster than AWS -- at least on a percentage basis. The dollar value of AWS deals are likely still larger, as Amazon is operating from a larger base.

Much at stake

Gartner predicts that worldwide public cloud revenue will top $186 billion in 2018, and it could reach as high as $302 billion by 2021. With that much at stake, expect the top players to continue to focus on market share.

With a dominant market position, still impressive growth, and a rising operating margin, AWS remains the crown jewel of Amazon's growing empire. Based on those factors alone, I think Amazon stock is a buy -- whether this analyst's exact prognostications are right or not.