In early 2024, I made three predictions for Amazon (AMZN +2.05%) stock investors. Let's see how I did:
- I predicted that Amazon's cloud growth would reaccelerate. In the three quarters reported thus far in 2024, revenue for Amazon Web Services (AWS) has increased 18% year over year, including 19% growth in Q3. That's up from 13% growth in 2023, so I'll put that in the win column.
- My call that Amazon's artificial intelligence (AI) would be a sleeping giant also appears to be playing out, though it isn't nearly as quantifiable. However, AI Magazine named Amazon SageMaker as "one of the top AI tools of 2024," beating out both Microsoft Azure AI and Alphabet's Google Cloud AI, so I'll take that as well.
- I also correctly called that Amazon would join Microsoft and Apple in the $2 trillion club. However, I only get partial credit because while Amazon's market cap is indeed above $2 trillion, Apple, Microsoft, and Nvidia are all valued at more than $3 trillion as of this writing.
All three of my predictions turned out to be spot on, though each seems like a lead-pipe cinch in retrospect. Let's see whether I can keep up my streak of Magic 8 Ball-like prognostications for 2025.
Image source: Getty Images.
1. Amazon will retain its lead in the cloud
While some might think this is a foregone conclusion, the area of cloud infrastructure services has become remarkably competitive over the past few years. Google Cloud and Microsoft Azure have been battling for the title of "fastest-growing" cloud service. Google Cloud came out on top with 36% year-over-year growth in the third quarter -- taking the crown from Microsoft with 33%, and AWS trailed with 19%.
CEO Andy Jassy noted, "We've seen significant reacceleration of AWS growth for the last four quarters," putting its annualized revenue run rate at $110 billion. With that, AWS controls roughly 33% of the cloud infrastructure services market, more than Azure and Google Cloud combined, according to research firm Canalys.
I predict that AWS' growth will continue to reaccelerate, helping Amazon retain the cloud title throughout 2025 -- even in the face of rising competition.
2. Amazon will steal Microsoft's thunder
Microsoft gets at least partial credit for igniting the AI revolution. The company's investment in ChatGPT parent OpenAI and subsequent integration of generative AI tools across its vast empire helped kick-start AI adoption, and Mr. Softy has been reaping the rewards.
For example, during the company's fiscal 2025 first quarter (ended Sep. 30), Microsoft reported that its Azure Cloud growth included "12 points from AI services, similar to last quarter." This has been a recurring theme for the company in recent quarters. Indeed, Microsoft is "leading the overall AI and generative AI race," according to data compiled by IoT Analytics.
That said, the competition is heating up, and Amazon has come out swinging. Jassy recently said, "In the past 18 months, AWS has released nearly twice as many machine learning and generative AI features as the other leading cloud providers combined" (emphasis mine).
I predict that over the course of the next year, Amazon's growing list of AI-related features will reassert its dominance, making it the AI leader.
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Key Data Points
3. Amazon's flagship e-commerce business will become even more profitable
One of Jassy's biggest initiatives during his term as CEO has been to increase Amazon's profitability by cutting costs and realigning its logistics and fulfillment centers. The company has been focusing on "getting more items closer to end customers." This, in turn, saves on shipping costs, making Amazon more profitable.
The company is also leaning into automation, with "our newest robotics inventions to simplify stowing, picking, packing, and shipping processes." Jassy notes these advances reduce fulfillment processing time by 25%, resulting in a 25% improvement in costs during peak times.
Those efforts have been front and center in Amazon's North American segment -- its biggest by far. While e-commerce sales increased 10% year over year during the first nine months of 2024, operating income increased by a whopping 87%. This helps illustrate Amazon's success at cutting costs, thereby dropping more profits to the bottom line.
I predict that Amazon will continue to implement these groundbreaking cost-saving measures, further expanding its bottom line.
