The stock market offers few guarantees. However, there is one exception: Change is constant.

Looking back, it's not uncommon to see the market's 10 largest companies by market cap completely reshuffle every five or 10 years. Innovation, competitive advantages, and acquisitions, among other factors, regularly crown new superstars and pull the rug out from beneath widely held companies.

It's my belief that e-commerce giant Amazon (AMZN 2.08%) is on track to soon surpass both Microsoft and Apple to become the largest publicly traded company. And that's not all. Between now and 2025, I predict Amazon will hit $10,000 a share. This would give the company a $5 trillion market cap.

Sound outrageous or too good to be true? I'm about to show you why $10,000 by 2025 is saner than you think.

A father carrying an Amazon package under his right arm while his daughter holds open a door for him.

Image source: Amazon.

Amazon's online market share is unrivaled

Let's start by examining Amazon's two (yes, two) dominant operating models.

Most people are probably very familiar with Amazon's online marketplace. According to data found on statistics-aggregator Statista, nearly 215 million people visited Amazon's online sites in December 2019. We can probably safely assume this figure moved substantially higher throughout 2020, with consumers stuck in their homes due to the coronavirus pandemic. 

Yet this isn't the jaw-dropping figure. What's even more impressive is that Amazon controls an estimated 40.4% of all online sales in the U.S., according to an April 2021 report from eMarketer. Think about this for a moment: $0.40 of every $1 spent online in the U.S. is being routed through Amazon, and the company's market share keeps inching higher.

While it's great to be the go-to source for e-commerce, Amazon is also acutely aware of how razor thin retail margins can be. It's helped offset this by pushing its Prime membership.

With Prime, members enjoy free two-day shipping, the unlimited streaming of movies and videos on Prime Video, and multiple deals and discounts when shopping. For Amazon, Prime helps the company generate tens of billions of dollars in additional revenue. With more than 200 million Prime members worldwide, Amazon is able to use the revenue from Prime to undercut brick-and-mortar retailers on price. It also doesn't hurt that Prime members have added incentive to spend more and to stay within Amazon's ecosystem of products and services. 

A cloud in the middle of a data center that's connected to multiple wireless devices.

Image source: Getty Images.

AWS is becoming a more important puzzle piece

But Amazon is about far more than just its dominant online marketplace. The company's cloud infrastructure segment, Amazon Web Services (AWS), is also an absolute beast.

According to global technology-analysis company Canalys, worldwide cloud revenue spending in the first quarter of 2021 totaled $41.8 billion. Of that nearly $42 billion, Google Cloud (a division of Alphabet) accounted for 7%, Microsoft Azure was responsible for 19%, and AWS stood tall with a 32% market share! 

With the pandemic wreaking havoc on traditional workplaces, businesses of all sizes have been pushing online and into the cloud to reach customers. That's meant sustainably high demand for AWS, which provides everything from database storage and content delivery to advanced analytics and management tools. 

How impressive has AWS been for Amazon? During the worst economic downturn in decades in 2020, AWS still grew sales by 30%. Revenue jumped another 32% in the first quarter of 2021, which pushed its annual sales run rate to about $54 billion.

What's important to realize about AWS is that the margins associated with cloud infrastructure services are light years higher than Amazon's online marketplace. Even though AWS accounted for "just" $13.5 billion of the company's $108.5 billion in net sales in Q1 2021, it produced close to $4.2 billion in operating income. Amazon's other businesses, which yielded $95 billion in revenue, produced only $4.7 billion in operating income. In short, as AWS grows into a large percentage of total sales, operating income and cash flow will grow at a much faster rate than the company's total sales. 

A messy stack of one hundred dollar bills.

Image source: Getty Images.

Amazon at $10,000 by 2025 is a very real possibility

Here's where things get interesting. It's no secret that Amazon's valuation doesn't make much sense using traditional fundamental analysis. This is to say that its price-to-earnings ratio and book value have always been in nosebleed territory. However, neither measure serves much purpose when we're talking about a nontraditional, fast-growing business. Since Amazon chooses to reinvest a majority of its capital, operating cash flow and historic operating cash flow multiples are considerably better measures of value for the company.

Dating back to 2010, Amazon has ended each of the past 11 years at a multiple relative to its operating cash flow of between 23 and 37. Again, from a fundamental perspective, this might seem high. But given Amazon's utter dominance in e-commerce and cloud infrastructure services, it's a multiple that Wall Street and investors have been perfectly willing to support for more than a decade.

As we look to 2021 and beyond, Wall Street is crystal clear that it expects AWS to help more than double Amazon's cash flow per share. Keeping in mind that estimates are fluid, here's what analysts are looking for, in terms of cash flow per share, through 2025, courtesy of FactSet:

  • 2021: $153.73 consensus cash flow per share (CFPS)
  • 2022: $192.99 consensus CFPS
  • 2023: $234.91 consensus CFPS
  • 2024: $294.30 consensus CFPS
  • 2025: $341.70 consensus CFPS

If Amazon were to simply remain valued at the median of its operating cash flow multiple (30) over the past 11 years (the midpoint between 23 and 37), the $341.70 in CFPS that it's estimated by Wall Street to bring in by 2025 would lead to a share price of (drum roll) $10,251.

Amazon at $10,000 might seem like a pie-in-the-sky number, but it would be right in line with how investors have always valued the company. As long as AWS keeps growing by close to 30%, Amazon at $10,000 by 2025 becomes a very achievable target over the next four years.