Amazon (AMZN 1.35%) is one of most notable success stories in recent history. The company's operations initially involved selling books online. But the business looks nothing like those early days. Right now, Amazon is a technology-powered juggernaut that possesses a leading position in multiple exciting industries.
This company has been a wildly successful investment opportunity in the past. But investors are focused on what the future holds. Can this tech stock help you become a millionaire?
Image source: Amazon.
These might be Amazon's two best traits
One of the best characteristics Amazon has is that it is well positioned to gain from multiple secular trends. Most businesses are lucky if they benefit from just one tailwind. Amazon is in a different league in this regard.
Everyone recognizes the company as a dominant force in online shopping. E-commerce spending will continue to penetrate the overall retail sector. With Prime Video, Amazon is also in the streaming market, which is advancing at the expense of cable TV.
The business grew ad revenue 24% year over year to $17.7 billion in Q3, making it one of the leaders in the digital advertising space. There's also cloud computing and artificial intelligence, both areas Amazon has an unrivaled position in given the success of Amazon Web Services (AWS).
Growth potential means absolutely nothing if a business hasn't also built up an economic moat that protects it from the constant threat of competition. In any tech-related market, this is critical, as things are moving faster than ever. Amazon's moat is supported by things like a powerful network effect in its online marketplace, cost advantage in its logistics operations and AWS, switching costs for AWS, and intangible assets like its brand name and ability to collect and leverage data.
Amazon is a great addition to your portfolio
Investors will also rest assured knowing that this is one of the most dominant businesses the world has ever seen, with exposure to various growth markets and durable competitive strengths. Consequently, owning Amazon might seem like a no-brainer decision.
However, it's also important not to overpay for any stock. If market expectations are elevated, it means a business simply has to outperform those expectations to end up being a worthwhile investment. The best situation is when the valuation is attractive, which is the case with Amazon, whose shares trade at 18.8 times trailing-12-month operating cash flow. This is about the cheapest multiple the stock has sold for in 10 years. That presents a compelling setup for interested investors.
The trajectory of earnings is another variable that can lift the stock higher. Amazon went from posting a $241 million net loss in 2014 to reporting $59 billion of net income in 2024. Wall Street analysts believe that this profit figure will rise at a compound annual rate of 20% between 2024 and 2027. Amazon has benefited tremendously in recent years from a heightened focus on operational efficiencies, a strategy that has boosted its margins.
NASDAQ: AMZN
Key Data Points
Investors should have realistic expectations
Amazon has historically been a millionaire-making investment. Since its initial public offering in 1997, the stock has soared 230,900% (as of Dec. 12). If you purchased just $440 worth of shares back then, you'd have $1 million today. Amazon is, without a doubt, one of the top stocks of the past few decades.
Based on factors already discussed, long-term investors should certainly take a closer look at Amazon. The combination of secular trends, economic moat, valuation, and earnings growth all create a wonderful scenario for those searching for places to put some money to work before the year comes to an end.
This bullish stance doesn't mean the stock can turn its shareholders into millionaires, though. I don't think this is the case anymore. Amazon's sheer size is an inhibitor.
