Amazon's (AMZN -2.56%) stock looks like a coiled spring.
Pandemic-related gains drove a stunning 76% surge in the online retail giant's share price in 2020. Then its stock essentially treaded water last year on overblown fears that its growth could slow. Now, Amazon once again appears ready to break out to new highs. Here's why.
Image source: Getty Images.
1. The online retail market is still expanding
E-commerce sales account for about 13% of total retail sales in the U.S., up from less than 5% in 2010, according to Statista.
This chart shows that online sales peaked at nearly 16% of overall retail sales in the second quarter of 2020. That coincided with strict social distancing measures during the early stages of the pandemic, which forced many retailers to close their stores. That figure has fallen by about 3 percentage points since then as the economy reopened and people began to shop more often at stores once again.
Image source: Statista
Many investors have viewed this as a sign that the e-commerce industry's expansion has stalled. That's a mistake. Many of the benefits of online shopping -- such as a wider selection of goods, attractive prices, and fast and convenient shipping options -- are even more prevalent today. As a prime example, Amazon has invested aggressively in recent years to strengthen its fulfillment network so it can offer one-day and even same-day delivery services to more of its customers.
Due in part to these benefits, global e-commerce sales are projected to exceed $7.3 trillion in 2025, up from $4.2 trillion in 2020, according to eMarketer. Amazon stands to benefit from this megatrend perhaps more than any other company.
2. The shift to the cloud is in its early innings
The global cloud computing market will grow by 19% annually and surpass $1.2 trillion by 2028, according to Grand View Research. Rising internet penetration rates, soaring data consumption, and increased adoption of cutting-edge technologies like 5G and artificial intelligence (AI) will help to fuel its growth.
Within this massive, rapidly expanding market, infrastructure-as-a-service (IaaS) providers -- which supply businesses with the tools they need to build and scale their cloud operations -- are expected to enjoy particularly impressive growth. And among cloud infrastructure providers, Amazon Web Services (AWS) is the clear market leader, with a roughly 32% share of the industry.
With so much growth still ahead, investors can expect AWS to continue to drive Amazon's sales and profits higher in the coming decade.
3. The digital ad market is booming
Amazon's leading presence in e-commerce has also made it a powerful force in the advertising industry -- so much so that it's been gaining share from Alphabet's (GOOGL -1.23%) (GOOG -1.10%) Google and Meta Platforms' (META -4.13%) Facebook.
The U.S. digital ad market will almost double to more than $270 billion by 2023 from $153 billion in 2020, according to eMarketer. Amazon's share of this fast-growing industry is forecasted to rise from 10.3% to 14.6% during this time.
Meanwhile, Google's and Facebook's market shares are expected to decline from 28.9% and 24.9%, respectively, to 26.4% and 24.1%.
The reason? Amazon's growing army of third-party merchants is enjoying higher returns on their marketing investments by advertising directly on its e-commerce platform. This makes sense, as, unlike with Facebook and Google, people typically visit Amazon for the express purpose of buying something.
Never one to rest on its laurels, Amazon is rolling out a slew of new ad features for its merchants. This should help the e-commerce and cloud computing juggernaut grab a larger share of the booming digital ad market -- and provide investors with another powerful growth driver in the years ahead.
