If one word can sum up the story of the stock market in 2025, it is tariffs. President Donald Trump has levied baseline tariffs on goods from many nations around the globe, but his administration has taken its most aggressive stance against China. For weeks, Chinese imports were being taxed at an average rate of more than 100% (and in many cases, up to 145%), upending supply chains and making some goods all but unsellable in the U.S.
Amazon (AMZN -2.48%) faces headwinds because of these tariffs, as a lot of the sellers on its e-commerce marketplace source their goods from China and other nations that Trump is targeting aggressively. The tech giant's stock is down 14% from its all-time high as of this writing, giving it a market cap of $2.2 trillion. Despite these headwinds, I believe Amazon is poised to become the first company with a $5 trillion market cap, outpacing companies like Microsoft and Nvidia en route to that milestone. Here's why.
Growth in two monster sectors
In order for Amazon to reach a market cap of $5 trillion, it will need to keep growing its revenues at a double-digit rate (it grew its top line 10% year over year last quarter, excluding the impact of foreign exchange). And it can do so because of the long-term growth potential in both e-commerce and cloud computing, two sectors where it remains a leader.
E-commerce as a percentage of total retail sales in the U.S. is still well below 20%, even after the COVID-19 pandemic temporarily accelerated the shift toward online shopping. That share is once again climbing higher year after year, and given Amazon's dominance in North American e-commerce, the company should benefit. It also has an international segment with online sales platforms in countries like India and Japan. That part of the business is now closing in on $150 billion in annual revenues, and it has room to head higher over the next 10 years.
However, its cloud division, Amazon Web Services (AWS), has perhaps an even better long-term growth trajectory. The corporate world's transition away from on-premises servers to cloud-computing data centers is a long-term trend that is still in its early innings. It's also getting supercharged by the emergence of artificial intelligence (AI). The cloud computing market will grow 15% to 20% annually through 2030, according to various estimates, and that's in line with AWS' revenue growth of 17% last quarter. AWS had more than $100 billion in sales over the last four reported quarters, and it has the potential to exceed $200 billion in annual revenues within the next decade due to these major tailwinds.
Image source: Amazon.
Margin expansion should continue
Another factor working in Amazon's favor is profit margin expansion. Its most profitable segments are the ones growing the fastest, which should boost its margins in the next few years. For example, AWS boasted an operating margin of just under 40% last quarter, while its North America segment, which includes the core marketplace, had a margin of just 6%.
However, individual pieces of the North America segment are likely faring better. Advertising revenue grew 19%, and it probably has high profit margins too. Subscription revenue also grew 11% year over year. Together, those two business contributed almost $26 billion in sales last quarter.
Add it all up, and Amazon could expand its net profit margin from its current 10% and eventually reach 15% (or even 20%) over the next decade if it stays disciplined around expenses. Heavy spending became a problem in 2021 and 2022, but today, management has lifted the company's net margin to an all-time high with room to grow. Combine that with steady revenue growth, and Amazon's earnings could soar.
Data by YCharts.
New projects with long-term potential
Amazon is also developing new units like Project Kuiper -- its plan to bring satellite internet to millions around the globe. It will cost around $10 billion to build and deploy the satellite constellation that will support its service, and zero revenue is coming in from Kuiper today. But the payoff in the near future could further boost revenue and expand profitability. AI could provide a big tailwind for its e-commerce marketplace as well, although it is hard to quantify the cost of development on that front.
In 2024, Amazon generated $638 billion in annual revenue. If it grows its top line by 10% annually through 2030, it will reach just over $1 trillion in revenue. Apply a 15% net margin, and you have approximately $150 billion in earnings for Amazon in 2030. The stock trades at a price-to-earnings ratio (P/E) of 35 as of this writing. Combining that valuation multiple with $150 billion of projected earnings is enough to bring Amazon above the $5 trillion milestone.
The company won't grow its top and bottom lines on a straight path exactly as outlined in the above scenario. The key takeaway here is the potential for multiple tailwinds to drive its long-term growth. A leadership position across multiple industries is why Amazon will be the first stock to reach a market cap of $5 trillion.
