Suppose I ask which stock you think will perform the best over the next 10 years. It's an impossible question. There are thousands of publicly traded companies, and the best performer in 10 years may not even be public yet! Instead, investors should wonder: Which company offers the most upside with the least risk?
That's a different conversation entirely.
The best investment would be a stellar business with fantastic growth prospects. Ideally, the stock would also trade at an attractive price, giving investors a margin of safety and extra headroom for investment returns.
Sometimes, you don't need to go too far off the beaten path. E-commerce giant Amazon (AMZN 1.52%) has minted millionaires on its journey to becoming a multi-trillion-dollar company over the past few decades. Remarkably, the stock could still have enough upside to make it the best investment for the next 10 years. Here's why.
The core businesses will continue growing
Amazon started with books in the 1990s and became the dominant online retailer in the U.S. The company owns a staggering 40% of online sales in America. Roughly two decades ago, Amazon launched its other core business, the cloud computing platform Amazon Web Services (AWS). It's also an industry leader, accounting for 30% of the global cloud services market.
The company's size and leading share are competitive advantages in both segments. Amazon's retail business offers more product selection and faster deliveries at the lowest prices, and the situation is similar for AWS. Online retail and cloud represented approximately $152 billion of Amazon's $187.8 billion total fourth-quarter 2024 sales, and AWS generates the lion's share of the company's operating profit.
NASDAQ: AMZN
Key Data Points
Investors should be excited about the growth opportunities these two segments still have. E-commerce still represents just 16.4% of total retail spending in the United States. That could increase as people shop online more frequently and e-commerce penetrates new spending categories, such as grocery and automotive. Amazon is leaning into both of these.
Additionally, artificial intelligence (AI) growth is poised to drive increased cloud usage over the next decade. Researchers estimate that AI-related cloud revenue could surpass $100 billion this year and grow to approximately $589 billion by 2032. Amazon's 30% market share could translate to $120 billion in incremental cloud revenue, more than AWS' entire cloud business in 2024.
New opportunities to flourish over the next decade
Amazon is famous for its aggressive culture. The company is constantly pushing into new markets and industries.
Some of Amazon's smaller but promising segments include:
- Prime: Amazon's Prime membership has approximately 200 million paying users and creates recurring revenue for the company while serving to distribute new products and services (such as those below).
- Advertising services: Amazon's ad business grew by 18% year over year in Q4, totaling about $56 billion in trailing 12-month sales.
- Media and entertainment: Prime Video, Amazon's streaming service, is included with Prime membership. Amazon has invested heavily in content, including live sports and a partnership with Lionsgate.
- Health care: Amazon offers telehealth services directly to customers on a pay-per-visit model or as a perk included with Prime.
- Smart devices: Amazon's Alexa devices are the most popular smart speakers, with approximately 61% of the U.S. market. The company is launching a premium Alexa service with AI integration.
- AI infrastructure: Amazon is developing custom chips for training and operating AI models. This could make Amazon a player in future industries like humanoid robotics.
Any of these up-and-coming segments could take off and grow to become core businesses. Plus, this doesn't factor in new things that Amazon may do in the future! The company could also spin off successful assets as independent entities to create value for Amazon shareholders.
The stock is a bargain at its current price
It doesn't feel like a stretch to label Amazon a world-class business. The best stocks often command the highest valuations, but Amazon does not -- at least, not now.
The stock market's recent volatility has hit Amazon and other Magnificent Seven stocks. Amazon is currently 20% off its all-time high. Yet, the business continues to chug along. Amazon tends to invest a lot of its profits back into the company to fund all these growth projects. Therefore, I like to value Amazon stock using its cash from operations (CFO), the cash flow its business generates from its regular activities.
From that perspective, Amazon stock is trading near its lowest valuation of the past decade.
AMZN Price to CFO Per Share (TTM) data by YCharts.
Amazon may not grow as fast as it used to because it's so large now. However, the numerous growth opportunities in existing and new segments, combined with such a cheap valuation, make Amazon a compelling candidate to outperform the broader market over the next decade. Plus, you'll sleep well at night, owning one of the best companies on Earth.
