The market hasn't been thrilled with Amazon (AMZN +0.26%) lately. The e-commerce giant reported pretty outstanding second-quarter results, but tariffs remain a threat to its profits, and a few parts of the report were less than positive. As a result, Amazon stock is now roughly flat year to date, even as the benchmark S&P 500 has climbed more than 10%.
But the disappointing updates were really a small part of what was largely an encouraging report. Let's review what's happening at Amazon and consider where it might be in five years.
No rivals in e-commerce
In the years since it began operating three decades ago, Amazon has become the king of U.S. e-commerce. No domestic competitor has been able to come close to it. It keeps building on its lead with improved delivery times and wider assortments of products, and it's upgrading its own fulfillment chain with robotics and drone deliveries. It also has leverage with suppliers and delivery providers. It's a combination that provides it with a robust moat that has kept it on top.
Image source: Amazon.
One of the things that bothered the market in the second-quarter report was the uncertainty around tariffs, which will broadly impact e-commerce sales. A large portion of the goods sold on Amazon come from suppliers in China. How much of an issue those import taxes will be for the company is likely to be clarified over the coming months.
The e-commerce segment is one of its slower-growing businesses, but it provides income that fuels its innovation in other areas. However, e-commerce sales were strong in the second quarter, up 11% year over year. Management said that it will bring its same-day or next-day delivery services to another 4,000 smaller communities by the end of the year, and that trend of expansion should continue. Investors can expect that Amazon's e-commerce sales growth will slow down over the next five years, but that it will speed up deliveries and widen its moat.
Still the leader in the cloud
Something else that concerned investors in the report was the sales growth rate for Amazon Web Services (AWS). Revenues from the unit increased 17.5% year over year, but that was well below the 34% increase achieved by Microsoft Azure, the No. 2 cloud infrastructure player. AWS is still much bigger than Azure, so its slower growth rate shouldn't be viewed as too alarming. Still, this is something to keep an eye on.
NASDAQ: AMZN
Key Data Points
For now, Amazon is the largest cloud infrastructure provider in the world, with 30% of the market, according to Statista -- almost as much as Azure and No. 3 Google Cloud combined. Amazon CEO Andy Jassy constantly tells shareholders that 85% to 90% of client information technology spending is still for on-premises systems, but that that's going to shift over the next 10 to 15 years to the cloud. Amazon is investing in cloud development to keep its dominant position and benefit from that shift.
Five years from now, that should have started to become a reality, and the growth rate for AWS could accelerate, or at least hold steady.
Staking a position in AI
That brings us to artificial intelligence (AI), since Amazon's generative AI business operates under the AWS umbrella. Amazon is spending more than $100 billion in 2025 alone to develop its platform and offer something for everyone. It already offers a slew of services through its signature AI platform, Bedrock, and it's focusing on improving the top layer of the platform that offers ready-to-use solutions.
Jassy envisions a not-too-distant future where generative AI is built into every new app, and most of the development of those tools is going to take place in the cloud. That's why Amazon is developing a comprehensive platform, and that could lead to continued high growth in what is currently a triple-digit percentage growth business over the next five years.
Becoming the biggest company in the world by sales
Amazon is the second-largest company in the world by sales, behind retail giant Walmart. But it's close to overtaking it; Amazon's sales were $167.7 billion in the second quarter, while Walmart's were $165.6 billion in its most recently reported quarter.
If sales growth continues at double-digit percentage rates, or even slips to the high single-digit percentages, and its operating income keeps climbing, it's hard to imagine Amazon stock not trading much higher in five years than it is today. As the company grows, its growth rates may come down, but as AI plays a larger role in its business, it could keep growth rates steady. Here are two potential scenarios:
| Metric | Scenario 1 | Scenario 2 |
|---|---|---|
| Compound annual growth rate | 9% | 12% |
| Total annual revenue in 5 years | $1.03 trillion | $1.18 trillion |
If its price-to-sales ratio remains constant, that growth would give Amazon a market cap of $3.7 to $4.2 billion, although its price-to-sales ratio will naturally fluctuate based on market sentiment. Those estimates, though, would equate to share price increases of somewhere between 60% and 85% over the next five years. Those are not earth-shattering numbers, and they only represent a couple of the many possibilities, but I think they offer a reasonable expectation of where Amazon stock could be in five years.
