It’s amazing how things can change so much in just 20 years. 20 years ago, industrial and energy powerhouse general electric and exxon mobil The most valuable companies were worth $319 billion and $283 billion, respectively, as measured by market capitalization. As we look to 2024, technology concerns are leading the way.
Three of the world’s most famous technology companies topped the list. apple It leads the pack with $3.4 trillion (as of this writing). Nvidia and microsoft are following closely behind, with market capitalizations of $3.1 trillion and $3 trillion, respectively.
With a market capitalization of just $1.9 trillion, this may seem premature. Amazon (NASDAQ:AMZN) It has all the attributes needed to be a member of the $3 trillion club. But the stock is up 42% in the past year and 109% in the past five years, and that recovery looks set to continue.
Recent improvements in economic conditions, the company’s strong market position, and the cautious introduction of artificial intelligence (AI) could provide the impetus needed to increase Amazon’s membership in this elite fraternity.
Improved performance
The past few years have been fraught with challenges, not least of which is the economic downturn due to the highest inflation in decades. However, there has been a significant improvement in recent months as consumer sentiment hit a five-month high in September and the Federal Reserve launched a long-awaited campaign to cut interest rates.
Improving economic conditions are having a positive impact on Amazon’s performance. Second quarter net sales were $148 billion, up 10% from the same period last year, and diluted earnings per share (EPS) nearly doubled to $1.26.
The strong performance was driven by improvements across the company’s major business segments. Online sales in the U.S. increased 9% and international sales increased 7%. Perhaps most important was the reacceleration of Amazon Web Services (AWS), the company’s cloud computing business, which rose 19%, its highest growth rate since late 2022.
Just as important, advertising, the company’s fastest-growing business, increased by 20% as Amazon strives to become a major player in the advertising world.
An industry leader in many ways
Amazon is the undisputed leader in the field of e-commerce it pioneered. The company accounted for 38% of U.S. digital retail sales last year, more than its next 15 largest competitors. combinedaccording to data compiled by eMarketer. This dominance is expected to continue into 2024, with the company expected to capture 40% of U.S. online sales this year.
The company has been embracing AI for years to maintain a competitive advantage over its competitors. Amazon uses AI to recommend products to customers and to predict and maintain appropriate inventory levels in its distribution centers and warehouses. The company also uses AI-powered robots to stock shelves and collect products for shipment, deploying these advanced algorithms to determine the most efficient delivery routes.
Amazon is also a leader in cloud computing, another business it pioneered. Amazon Web Services (AWS) is the leading provider of cloud infrastructure services, with 33% of the market in the second quarter, followed by Microsoft Azure in second place. alphabetGoogle Cloud is in third place, with 20% and 10% of the market, respectively, according to research firm Canalys. Amazon offers one of the largest repositories of AI models for its cloud customers, which is helping to re-accelerate cloud growth.
Last but not least is Amazon’s digital advertising business. The company displays ads on e-commerce websites, Prime Video, Freevee, the Amazon Music streaming service, the Twitch video game streaming platform, and more. The company uses AI to help ensure its ads reach its target market. This result is undeniable, as advertising has been Amazon’s fastest growing business for several years in a row.
The road to $3 trillion
Amazon currently has a market capitalization of about $1.9 trillion, and its stock would need to rise about 57% to reach $3 trillion. According to Wall Street, Amazon is expected to generate $635 billion in revenue in 2024, with a future price-to-sales (P/S) ratio of approximately 3x. Assuming P/S remains constant, Amazon will need to expand its sales. Revenues reach approximately $998 billion annually to support a $3 trillion market capitalization.
Wall Street currently projects Amazon’s revenue growth to be 11% annually over the next five years. If a company achieves that benchmark, It was done It will reach a market capitalization of $3 trillion by 2029 at the earliest. It’s worth noting that Amazon has increased its annual revenue by nearly 400% over the past decade, so these estimates may be conservative.
Additionally, Amazon currently sells for about 3.2x sales, a slight discount compared to the average multiple of more than 3.3x over the past five years. That’s a pretty attractive price for a company with many ways to win.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Danny Vena has held positions at Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Meet the unstoppable growth stocks that could join Apple, Nvidia and Microsoft in the $3 trillion club by 2029 (Original article: The Motley Fool)
