Amazon (AMZN +0.53%) ranks as the fourth-biggest stock traded on U.S. exchanges. Its market cap hovers near $1.5 trillion. But just how much bigger can Amazon realistically grow?
That question isn't easy to answer. Over the last seven years, Amazon's market cap has exploded 6x higher including the gain of more than 70% so far in 2023. Could the company do it again over the next seven years? Probably not, but I still expect significant growth. Here's my prediction about how much Amazon will be worth in 2030.
NASDAQ: AMZN
Key Data Points
Potential growth drivers
There are multiple factors that make a stock price go up (or down). Over the long term, though, investors' expectations of future cash flows that are likely to be generated by a company make the biggest impact.
I think that Amazon's cash flows will grow over the next decade and beyond. But what will the key growth drivers for the company be?
Amazon Web Services (AWS) will almost certainly be the single biggest growth engine. That's been the case over the last several years. There's no reason to believe the trend won't continue.
The surging adoption of artificial intelligence (AI) seems likely to be the greatest catalyst for AWS' cloud services. Amazon CEO Andy Jassy was spot on, in my view, with something he said during the company's second-quarter conference call:
Remember, the core of AI is data. People want to bring generative AI models to the data, not the other way around. AWS not only has the broadest array of storage, database, analytics, and data management services for customers, it also has more customers and data store than anybody else.
We shouldn't overlook Amazon's growth opportunities in its core e-commerce business, though. Although e-commerce won't be the powerhouse that AWS will probably be, it's nonetheless important to Amazon's future cash flow generation.
There are also a few wild cards that could make a difference within a few years. For example, Amazon has expanded into healthcare and self-driving cars with its One Medical and Zoox acquisitions, respectively.
Back-of-the-envelope "estimates"
Jassy has stated in the past that 90% to 95% of global IT spending is still on-premises with the remainder in the cloud. He thinks those numbers will flip over the next 10 to 15 years.
Let's assume that Jassy is somewhat overly optimistic and that instead 80% of IT spending moves to the cloud. Since 2030 is nearly halfway through the upper end of his projected time period, let's also suppose that the cloud market grows from roughly 10% of IT spending today to around 40% by then.
AWS currently commands a market share of 32%. However, rivals have captured some of the unit's market share in recent years. Let's assume, though, that AWS grows roughly at the overall market rate going forward. If so, it could generate revenue in the ballpark of $350 billion by 2030.
Cushman & Wakefield senior economist James Bohnaker projects that e-commerce market share as a percentage of retail will increase from 14.7% at the end of 2022 to around 20% by the end of the decade. That seems to be a fair estimate to me. If Amazon's e-commerce business can expand at the overall market growth rate, it could pull in close to $550 billion by then.
It's more difficult to make a "estimate" for how much growth Amazon's wild cards such as healthcare and self-driving cars will contribute. Let's assume that the overall impact is relatively minimal, although that could be an assumption that is way too pessimistic.
Putting it all together
Using the above back-of-the-envelope numbers, Amazon could generate revenue in 2020 of around $900 billion. Its shares currently trade at a price-to-sales ratio of roughly 2.8x. That multiple is on the low end for Amazon historically, but let's go with it.
Putting it all together implies that Amazon could have a market cap in the ballpark of $2.5 trillion by 2030. This projection reflects a compound annual growth rate of only around 7.5%.
I think that's a lowball number. My hunch is that AI will fuel more cloud growth than my estimates factored in. I also suspect that Amazon's wild cards will make more than a negligible impact.
This is more of a gut feeling, but I predict that Amazon will actually be worth at least $3 trillion by 2030 -- double its current value. If I'm even close to right, this stock should continue to be a winner for investors.
