Once upon a time, it was industrial and energy companies that ruled that roost, but times have changed. In 2004, General Electric and ExxonMobil were the world’s most valuable publicly traded companies in terms of market cap, worth $319 billion and $283 billion, respectively. Now, just 20 years later, data is the new oil and technology leaders top the charts.
Apple and Nvidia are currently battling for the top spot, with market caps of $3.4 trillion each (as of this writing). Microsoft rounds out the top three, worth $3 trillion.
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With a market cap of just $2.1 trillion, it might seem to be jumping the gun to suggest that Amazon(NASDAQ: AMZN) has all the makings of a future member of the $3 trillion club. However, the stock has gained 39% over the past 12 months and 132% over the past five years, so it seems its admission is merely a matter of time.
The economy, it appears, in finally on the mend, which will likely fuel Amazon’s growth. Add to that the company’s multiple leadership positions and a strong showing in AI, and you have all the requirements for membership in this elite fraternity.
Image source: Getty Images.
The biggest headwind holding Amazon back over the past few years has been the struggling economy. It appears the downturn and its decades-high inflation may finally be in the rearview mirror. Consumer confidence recorded its strongest monthly gains since March of 2021, while those anticipating a recession over the coming year dropped to the lowest level in more than two years. Additionally, the Federal Reserve Bank has recently made its second interest rate cut after a long hiatus. Add to that an historically low unemployment rate, and you have all of the ingredients for a rebounding economy.
These improvements have fueled both e-commerce and cloud spending, which has been evident in Amazon’s results. In the third quarter, net sales of $159 billion accelerated to 11% year over year, while diluted earnings per share (EPS) of $1.43 jumped 52%.
Each of the company’s major operating segments contributed to the results. North American sales climbed 9% year over year, while international sales jumped 12%. Amazon Web Services (AWS) — the company’s cloud computing business — continued its recovery, increasing 19%, tied for its highest rate of growth in nearly two years. Finally, the company’s advertising — which reaches into every corner of Amazon’s growing empire — increased 19%.
Despite the law of large numbers, Amazon is generating robust growth, particularly for a company of its size.
Amazon was a pioneer in the concept of e-commerce, an industry it still dominates. The company captured 38% of all U.S. online retail sales last year, outpacing its next 15 largest rivals combined, according to data supplied by eMarketer. Amazon is expected to continue its leadership when the books are closed on 2024, as it’s expected to account for 40% of online sales in the U.S. this year.
The company also pioneered cloud infrastructure services, or cloud computing, an area it continues to dominate. Amazon Web Services (AWS) controlled 33% of the market to close out the third quarter, with Microsoft Azure at No. 2 and Alphabet‘s Google Cloud at No. 3, with 20% and 10% of the market respectively, according to research firm Canalys. However, AWS can’t rest on its laurels, as its 19% year-over-year growth was outpaced by Azure and Google Cloud, which grew 33% and 36%, respectively.
Amazon’s position as the cloud leader gives the company an advantage when it comes to dispensing AI models and selling related services to its customer base — and it has plenty of experience in the area. Amazon has a long track record of using AI to make product recommendations, maintain inventory levels, and even construct efficient delivery routes.
The hidden gem in Amazon’s empire is the company’s advertising segment. Amazon has expanded beyond the digital real estate of its e-commerce website, making ad-supported the default for its Prime Video, Amazon Music, and Twitch video game streaming services. Just last week, the company announced it is shuttering its Freevee streaming service and rolling it into Prime Video, resulting in even more opportunities for ads. It’s no coincidence, then, that advertising has been Amazon’s fastest-growing business over the past few years.
Amazon currently boasts a market cap of roughly $2.1 trillion, which implies it will take stock price gains of roughly 42% to push its value to $3 trillion. According to Wall Street, Amazon is expected to generate revenue of $637.7 billion in 2024, giving it a forward price-to-sales (P/S) ratio of roughly 3. Assuming its P/S remains constant, Amazon would have to grow its revenue to roughly $902 billion annually to support a $3 trillion market cap.
Wall Street is currently forecasting revenue growth for Amazon of 11% annually over the next five years. If the company can achieve this rate of growth, it could achieve a $3 trillion market cap as soon as 2028. It’s worth noting that Amazon has grown its revenue by roughly 442% over the past decade, so this isn’t necessarily a high hurdle to achieve.
Furthermore, Amazon is currently selling for roughly 3.4 times sales, which is comparable to its average multiple of 3.3 over the past five years. That’s a reasonable price to pay for a company with so many industry-leading businesses and a long runway for growth ahead.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends GE Aerospace and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
