Nvidia is the world's most valuable company, with a market capitalization of $4.5 trillion. Meanwhile, Palantir Technologies is worth $400 billion. That brings their collective valuations to $4.9 trillion. I think Amazon (AMZN 1.52%) and Alphabet (GOOGL 1.66%) (GOOG 1.68%) can top that figure by 2028. Here's what that implies for shareholders:
- Amazon is worth $2.6 trillion. The stock must add about 92% for the company's market value to hit $5 trillion. Reaching that level by the end of 2028 implies annual returns of 24% over the next three years.
- Alphabet is worth $3.9 trillion. The stock must add about 28% for the company's market value to hit $5 trillion. Reaching that level by the end of 2028 implies annual returns of 9% over the next three years.
Here's what investors should know about Amazon and Alphabet.
Image source: Getty Images.
1. Amazon
Amazon is deploying artificial intelligence (AI) products and tools across its three core businesses -- retail e-commerce, digital advertising, and cloud computing -- to not only increase revenue, but also to improve profitability. Non-GAAP operating margin increased nearly 2 percentage points in the past year due in part to efficiency gains in the retail business driven by generative AI tools.
Amazon Web Services (AWS) dominates the cloud infrastructure and platform services market with 41% market share, according to Gartner. Cloud computing revenue growth accelerated to 20% in the third quarter as AWS continued to benefit from demand for AI. "AWS is where the preponderance of companies' data and workloads reside, and part of why most companies want to run AI on AWS," CEO Andy Jassy said.
Looking ahead, retail e-commerce sales are projected to increase at 10% annually through 2030, according to Straits Research. Ad tech spending is forecast to grow at 14% annually through 2030, according to Grand View Research. And cloud services spending is projected to increase at 22% annually through 2030, according to Goldman Sachs. That means Amazon has powerful growth drivers in its three core businesses.
Here's how Amazon can become a $5 trillion company by 2028: The Wall Street consensus says earnings will grow at 19% annually over the next three years, which makes the current valuation of 34 times earnings look reasonable. But Amazon beat the consensus estimate by an average of 23% in the last six quarters. If that continues, its market value could hit $5 trillion by late 2028 while the price-to-earnings (P/E) ratio drops to 33.
My forecast is aggressive, but Amazon has opportunities beyond its core businesses that make a $5 trillion market value more likely. Most notably, its autonomous driving subsidiary Zoox recently launched a ride-sharing service in Las Vegas and plans to enter three new U.S. cities in the coming months. If Zoox gains momentum, the market may afford Amazon a higher P/E multiple.
NASDAQ: AMZN
Key Data Points
2. Alphabet
Alphabet's Google is the largest ad tech company in the world due to its ability engage internet users and collect data through platforms like Google Search and YouTube. While generative AI tools like ChatGPT are changing the search landscape, Alphabet is keeping pace with new features like AI Overviews and AI Mode (powered by its Gemini models).
The company has also introduced new AI-powered advertising tools, including the option to personalize ads in AI Mode. "Google's new ads feature will see it move a step forward from its AI rivals by enabling brands to offer highly personalized advertising through its chatbot, such as a discount code," according to The Financial Times.
Google is also the third largest public cloud in terms of infrastructure and platform services spending. It added a percentage point of market share in the past year, and that momentum could carry into future quarters due to its AI expertise. Forrester Research recently ranked Google as a leader in AI infrastructure, an area where the company has distinguished itself with custom AI chips and Gemini models.
Here's how Alphabet can become a $5 trillion company by 2028: The Wall Street consensus says earnings will grow at 15% annually over the next three years, which makes the current valuation of 32 times earnings look somewhat expensive. But Alphabet beat the consensus earnings estimate by an average of 14% in the last six quarters. If that continues, its market value could reach $5 trillion by 2028 while its PE ratio drops to 24.
Alternatively, Alphabet's market value could hit $6.7 trillion (implying about 70% upside) if the company maintains its current PE ratio of 32 . I think that is a plausible outcome because its autonomous driving subsidiary Waymo currently leads the market with commercial ride-sharing services in five U.S. cities.
