It’s made millionaires in the past. Can it keep making more?
Amazon (AMZN -4.19%) stock has already set up lots of investors for life, if they bought early and are still holding on. If you would have invested $1,000 in Amazon stock 20 years ago, you’d have more than $100,000 today.
The longer you go back, the more you would have. If you had invested that same amount on the first day of its shares trading on the stock market, on May 15, 1997, you’d have been up more than $2 million!
Those days are over, but Amazon isn’t. Can investing in Amazon today still set you up for life?
The leader in e-commerce
Amazon rarely provides details on its Prime membership outside of saying that it’s growing. The last time it gave an update on the numbers, it was over 200 million globally. Consumer tracking firms put the U.S. membership at around 180 million.
That’s a lot of people who rely on Amazon to get everything they need from sliced bread to diamond earrings. Amazon accounts for nearly 38% of all U.S. e-commerce, and it is constantly upgrading its platform to keep and grab more market share. The store’s business sales increased 9% year over year in the U.S. and 12% internationally.
The company made a major change two years ago by switching from a national fulfillment network to a regional one. It keeps its regional warehouses stocked with its highest-selling products and can get them to customers faster, because they’re already closer, and cheaper, for the same reason.
Amazon is still fine-tuning this program, and it’s now working on its systems for getting items to the regional warehouses, so the process runs more smoothly and cost effectively. It’s also investing in its robotics systems that will handle more work, which will ultimately save time and money.
The company recently opened a new facility using the latest robotics developments, and it’s demonstrating a 25% improvement in delivery times, plus improvements in same and next-day deliveries. It’s expected to create a 25% cost savings going forward.
At the height of the pandemic, when e-commerce exploded and every retailer that didn’t have an e-commerce presence ran to get one, it looked like Amazon might lose market share. But it fielded some of its highest demand ever, and as it offers more products at delivery speeds other companies can’t match, it’s well positioned to become an ever bigger e-commerce provider now and in the future.
The leader in cloud computing
Amazon sells cloud computing services under the Amazon Web Services (AWS) banner, and it’s the global leader in the industry. It has added loads of generative artificial intelligence (AI) services to the platform, and this is what creating tremendous excitement and confidence in Amazon’s business right now.
AWS was Amazon’s fastest-growing segment for a long time, bringing in more than 30% growth in a typical quarter. Plus, it consistently accounts for more than half of the company’s total operating income — nearly 60% in the third quarter.
Sales growth had decelerated sharply when inflation ballooned and clients cut down on spending, but it’s starting to heat up again. AWS sales increased year over year by 19% in the third quarter, tying advertising as the fastest-growing segments.
Not only are clients spending on the cloud again, but Amazon now offers incredible new AI services that can save clients time and money, such as writing code with prompts instead of long hours of inputting, freeing up workers for creative work. Management said that AWS has rolled out more AI features over the past 18 months than all of the other leading providers combined.
The AI business is growing at triple-digit rates and is already a multibillion-dollar run rate business. However, CEO Andy Jassy has stressed many times that it’s in its infancy, and this is the kind of opportunity that hasn’t come around in a while.
How high can Amazon stock go?
As long as the runway looks, Amazon isn’t starting from zero; it’s the fifth-most valuable company in the U.S., with a market cap of more than $2 trillion.
However, I wouldn’t count on it setting you up for life on its own. That status is reserved for young growth stocks that are just getting started and usually come with a good dose of risk. Consider how growth has slowed down over the past few years, with some pandemic-related lumpiness:
| Metric | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|---|---|
| Sales growth | 12% | 9% | 22% | 44% | 20% | 31% |
Data source: Company filings and press releases.
But over the medium term, Amazon is a no-brainer stock that could add tremendous value to a well-rounded portfolio. It’s reliable for growth over time, and its dominance in two growing industries, not to mention a strong position in others I didn’t even touch on, means that it’s likely to continue growing and gaining.
I recommend buying Amazon stock as a piece of a diversified portfolio, but finding other stocks to supercharge growth.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
