The sheer number of stocks to choose from can sometimes overwhelm investors. The fact that a company's popularity doesn't always correlate with strong fundamentals only further complicates things.
However, some prominent corporations attract attention for all the right reasons: They have solid underlying businesses and excellent prospects that should translate to superior performances over the long run.
Amazon (AMZN 0.04%) is a great example. Despite already delivering life-changing returns to long-term investors, the stock is still a no-brainer. Here is why.
Image source: Getty Images.
Amazon boasts multiple growth avenues
One thing that makes Amazon such an excellent stock to buy is that it dominates several industries with massive growth potential. Consider the company's e-commerce business. The tech leader was a pioneer in this field, and today it dominates e-commerce in the U.S., holding a 37.6% market share. The company that comes in second isn't even close at 6.4%.
But here's the cool part: According to the U.S. Census Bureau, as of the first quarter, e-commerce sales made up just 16.2% of total retail sales in the U.S.
In other words, there are still significant growth prospects in this area. Amazon will capitalize on this thanks to its leadership and the competitive advantage it gains from the network effect.
That said, e-commerce doesn't account for most of Amazon's profits. That comes from the company's work in cloud computing through Amazon Web Services (AWS). Here, too, Amazon is looking at a mouthwatering opportunity. The company has a lead in cloud computing and benefits from switching costs. Yet, as CEO Andy Jassy has argued, 85% of IT spend still occurs on-premises -- that means it hasn't yet moved to the cloud, despite the many benefits the cloud offers.
Then there is Amazon's massive push in artificial intelligence (AI). Jassy thinks Generative AI may be the largest technological revolution since the internet -- that's high praise. And here too, it's still in the early innings. In addition to offering AI-related products through AWS, Amazon is utilizing AI to enhance its own business, notably through an army of robots guided and directed by Gen AI technology, which the company hopes will improve efficiency and decrease costs.
Between e-commerce, AWS, and AI, Amazon's long-term future looks attractive. That's before examining other opportunities, such as the company's advertising business, which has also been growing at a good clip in recent years. Amazon is also making waves in healthcare thanks to initiatives such as Amazon Pharmacy and Amazon One Medical. The company has ventures in music and video streaming, as well as grocery shopping. Its operations are fairly diversified, in addition to the important growth avenues it could exploit.
The company can overcome challenges
Amazon will encounter some headwinds. First, President Donald Trump's tariffs could affect some merchants on its e-commerce platform -- and by extension, the company's performance in that segment. Trump's trade policies could also lead to economic troubles, which would decrease consumer spending and even impact demand for its cloud-related services.
Second, Amazon faces stiff competition in cloud computing and AI, especially from Microsoft, which has been gaining ground.
Even with those potential challenges in mind, Amazon should perform well over the long run. Economic challenges have previously impacted the company's e-commerce and cloud computing businesses.
A few years ago, Amazon reported a rare net loss, partly due to various economic headwinds. But the stock has rebounded nicely since. A downturn might temporarily disrupt Amazon's progress -- but it would be just that, temporary. Furthermore, AWS' switching costs should enable it to remain a leader in cloud computing.
Competition might eat into its market share, but over the long run, Amazon will profit from this large and rapidly growing industry. Amazon's opportunities should provide it with sufficient fuel to outperform the market over the next five years and beyond. That's why the stock is a no-brainer buy-and-hold option for investors focused on the long haul.
