It’s amazing how much things can change in just 20 years. Two decades ago, industrial and energy stalwarts General Electric and ExxonMobil were the most valuable companies when measured by market cap, worth $319 billion and $283 billion, respectively. Jump ahead to 2024, and technology concerns are leading the way.
Topping the list are three of the world’s most recognizable tech companies. Apple leads the pack at $3.4 trillion (as of this writing). Nvidia and Microsoft are trailing close behind, with market caps of $3.1 trillion and $3 trillion, respectively.
With a market cap of just $1.9 trillion, it might seem premature to suggest that Amazon (NASDAQ: AMZN) has all the attributes necessary for membership in the $3 trillion club. However, the stock has gained 42% over the past year and 109% over the past five years, and its rebound appears poised to continue.
Recent improvements in the economy, the company’s strong market position, and its measured adoption of artificial intelligence (AI) could be the drivers needed to fuel Amazon’s membership in this elite fraternity.
Improving performance
The past several years have been rife with challenges, not the least of which was an economic downturn fueled by decades-high inflation. There’s been a vast improvement in recent months, however, as consumer sentiment in September reached its highest point in five months and the Federal Reserve Bank began its long-awaited campaign of interest rate cuts.
The improving economic conditions are favorably impacting Amazon’s results. In the second quarter, net sales of $148 billion climbed 10% year over year, while diluted earnings per share (EPS) of $1.26 nearly doubled.
Helping fuel the robust results were improvements from each of the company’s major operating segments. Online sales in the U.S. increased 9%, while international sales climbed 7%. Perhaps most important was a reacceleration from Amazon Web Services (AWS) — the company’s cloud computing business — which jumped 19%, its highest rate of growth since late 2022.
Equally important is advertising — the company’s fastest-growing business — which increased 20%, as Amazon is working to become a major player in the ad world.
An industry leader — in more ways than one
Amazon is the undisputed leader in the realm of e-commerce, which is an area it pioneered. The company accounted for 38% of U.S. digital retail sales last year, more than its next 15 largest rivals combined, according to data compiled by eMarketer. That dominance is expected to continue in 2024, with the company expected to nab 40% of online sales in the U.S. this year.
The company has long employed AI to maintain a competitive advantage over its rivals. Amazon uses AI to make product recommendations to customers and predict and maintain adequate inventory levels at its distribution centers and warehouses. The company also uses AI-powered robots to stock shelves and gather merchandise for shipping, and deploys these advanced algorithms to determine the most efficient delivery routes.
Amazon is also the leader in cloud computing, another business it pioneered. Amazon Web Services (AWS) is the top provider of cloud infrastructure services, with 33% of the market in the second 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. Amazon offers one of the largest repositories of AI models for its cloud customers, which has helped reaccelerate its cloud growth.
Last but certainly not least is Amazon’s digital advertising business. The company displays ads on its e-commerce website, Prime Video, Freevee, Amazon Music streaming services, its Twitch video game streaming platform, and more. The company uses AI to help ensure the advertising reaches its target market. The results are undeniable, as advertising has been Amazon’s fastest-growing business for several years running.
The path to $3 trillion
Amazon currently boasts a market cap of roughly $1.9 trillion, which means it will take stock price gains of roughly 57% to drive its value to $3 trillion. According to Wall Street, Amazon is expected to generate revenue of $635 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 $998 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 achieves that benchmark, it could achieve a $3 trillion market cap as soon as 2029. It’s worth noting that Amazon has grown its annual revenue by nearly 400% over the past decade, so those expectations could well be conservative.
Furthermore, Amazon is currently selling for roughly 3.2 times sales, a slight discount compared to its average multiple of more than 3.3 over the past five years. That’s a pretty attractive price to pay for a company with so many ways to win.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Foolâs board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Foolâs 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 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.
Meet the Unstoppable Growth Stock That Could Join Apple, Nvidia, and Microsoft in the $3 Trillion Club by 2029 was originally published by The Motley Fool
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