Amazon (AMZN -0.48%) became a trillion-dollar company for the first time in September 2018, nearly doubled in value to $1.9 trillion in July 2021, but it's now only worth $1.3 trillion. The e-commerce and cloud giant struggled over the past two years as macro headwinds throttled consumer purchases and forced companies to rein in their software spending.
Those challenges caused Amazon to underperform all of the other FAANG stocks over the past two years, but could its market cap grow more than 50% again to join Apple and Microsoft in the $2 trillion club by 2030? Let's take a bird's-eye view of Amazon's strengths and weaknesses to find out.
Image source: Amazon.
What happened to Amazon over the past eight years?
Between 2014 and 2022, Amazon's annual revenue increased at a compound annual growth rate (CAGR) of 25%, its operating margin expanded from 0.2% to 2.4%, and its operating income rose at a CAGR of 69%.
Amazon's robust revenue growth was mainly driven by the expansion of its e-commerce business and Amazon Web Services (AWS), the world's largest cloud infrastructure platform. Most of its operating margin expansion came from AWS, which consistently generated higher-margin revenue than its lower-margin retail businesses.
Amazon repeatedly subsidized the growth of its e-commerce business with AWS' profits. That strategy enabled the company to launch aggressive promotions, sell cheap hardware devices (like the Kindle and Echo), and pour fresh cash into its digital media content to lock more customers into its subscription-based Prime ecosystem, which surpassed 200 million members worldwide in 2021. It also generated plenty of cash for big acquisitions like Whole Foods Market in 2017.
That strategy worked as long as AWS kept expanding. Between 2014 and 2022, AWS' sales rose from just $1.4 billion to $80.1 billion, equating to a whopping CAGR of 66%. AWS still controlled 32% of the global cloud infrastructure services market in the first quarter of 2023, according to Canalys, making it the clear leader and putting it comfortably ahead of Microsoft's Azure (23%) and Alphabet's Google Cloud (9%).
Amazon's stable e-commerce growth, rapid cloud growth, and its expansion into adjacent markets like digital advertising and digital media all impressed the bulls. As a result, its stock surged 670% over the past eight years as the S&P 500 rose 122%.
What will happen to Amazon over the next eight years?
Unfortunately, Amazon's growth slowed down considerably in 2022 as macro headwinds rattled its e-commerce and cloud businesses. Its revenue only rose 9% last year, compared to its 22% gain in 2021, and its investment in the struggling electric vehicle maker Rivian erased all of its operating income and resulted in a net loss.
Nevertheless, Amazon's growth should still stabilize over the next few years as the macro environment improves. Between 2022 and 2025, analysts expect its revenue to increase at a CAGR of 11% as its operating income rises at a CAGR of 58%. It's also expected to turn profitable again from 2023 as it laps its investment-related losses in Rivian.
Assuming that Amazon grows its top line at a modest CAGR of 10% from 2022 to 2030, it could more than double its annual revenue from $514 billion to $1.1 trillion. Amazon stock currently trades for just 2.3 times its projected sales for 2023, so if it's still trading for about 2 times forward sales in 2030, it could be worth a lot more than $2 trillion.
Amazon could grow at an even faster rate as its e-commerce business expands overseas, AWS continues to profit from the secular growth of the cloud market, and its higher-margin advertising business challenges Google and Meta Platforms with promoted product listings across its own online marketplace. Its investments in grocery deliveries, new streaming shows, cloud gaming, and other loss-leading projects could also lock millions of new users into its Prime subscriptions.
Don't underestimate Amazon's resilience
Amazon faces a lot of near-term challenges, but it could easily be worth $2 trillion by the end of the decade. I'd actually argue that estimate is far too conservative -- and that it could become even more valuable as it revs up its growth engines again.
