In the past 20 years, Amazon's (AMZN 3.43%) shares have skyrocketed an incredible 6,200%, turning $1,000 into more than $63,000 during that time. This magnificent tech giant has been so successful that it's now one of the most valuable enterprises on the face of the planet, valued at over $1.6 trillion today.
Past performance is never indicative of future returns. That might be even more accurate in this case, given Amazon's massive size. But the business still has a lot of positive factors working in its favor, which investors can be excited about today.
Where will this FAANG stock be in three years? The answer might surprise you.
Multiple growth engines
Despite generating net sales of $574.8 billion in 2024, which is second only to Walmart in the U.S., Amazon doesn't look to be slowing down anytime soon. In fact, this company benefits from multiple secular tailwinds.
Of course, everyone knows about e-commerce. Amazon pioneered online shopping and has been a leader for about three decades. In the U.S., Amazon represents nearly 40% of all e-commerce spending. With in-person shopping still representing about 84% of all retail spending domestically, there's still a sizable runway ahead.
With Amazon Prime Video, the business has a formidable service in the streaming industry. According to data from Nielsen, Prime Video is the most popular streaming service, behind only YouTube and Netflix. The cord-cutting trend is only set to continue as we look ahead.
Streaming should also feed Amazon's digital advertising ambition. Prime Video just started showing ads on its platform, which will boost revenue. Some people might be surprised to know that Amazon produced $46.9 billion of ad sales in 2023. This is proving to be a more critical revenue driver.
Artificial intelligence and the cloud
One of the growth engines that I didn't mention above is Amazon Web Services (AWS), the company's industry-leading cloud infrastructure provider that controls about one-third of the global market. Going forward, it's likely that AWS will become much more important to the overall business.
AWS reported revenue of $24.2 billion in the fourth quarter of 2023, which was 13% higher versus the year-ago period and a faster rate than was posted in Q3. Investors were concerned that the gains were slowing down, particularly while competitors like Microsoft Azure and Alphabet's Google Cloud were growing at a faster clip. So, it's encouraging to see AWS revenue start to pick back up.
From a profitability perspective, the cloud is a financial boon. AWS reported a stellar operating margin of 29.8% in the last three months of 2024, indicative of how lucrative a scaled software business can be. As the segment continues to grow, Amazon's overall profitability should get a lift.
Grand View Research estimates that the cloud market will be worth nearly $1.6 trillion by 2030, giving Amazon another gargantuan end market to penetrate. Even though the business is already massive, it's easy to see where growth can come from.
AWS also makes Amazon a leader in the artificial intelligence (AI) revolution. As more enterprises shift their IT spending from on-site to off-premises, a service like AWS becomes their backbone. This means various AI offerings, like Bedrock for generative AI applications, CodeGuru for improving code quality, and Kendra for intelligent search, to name a few, will make AWS a mission-critical platform for customers.
Rewarding shareholders
There are a lot of reasons to like Amazon's business. But before we figure out what the stock can do over the next three years, we need to understand the valuation.
Amazon shares have soared 55% in the last 12 months. Despite this strong performance, they remain reasonably priced. The current price-to-sales multiple of 3 is still below Amazon's 10-year historical average. That seems like a good entry point for the stock to continue beating the market going forward.
