If the last few years have taught us anything, it’s never bet against America’s big tech companies. With stocks up 104% over the past five years, Amazon (NASDAQ: AMZN) has weathered both the COVID-19 pandemic and the inflation crisis of 2022 while keeping shareholder value intact (albeit a bumpy ride). Let’s take a look at what the next five years hold for the diversified tech conglomerate.
Strengthening the foundation
While Amazon has successfully diversified into businesses ranging from cloud computing to artificial intelligence (KI)the foundation remains e-commerce. In 2022, this expanding segment began to underperform due to COVID-era overexpansion and high inflation, eroding consumer purchasing power. But now those challenges are a thing of the past.
Amazon’s first-quarter net sales rose 13% year-over-year to $143.3 billion. But more importantly, operating income grew more than three times as much, from $4.8 billion to $15.3 billion in the same period.
This transformation was partially powered Amazon is leading the way in e-commerce, with significant cost savings in North American e-commerce (where management grew operating revenue 455% to $4.98 billion) and international e-commerce (where it went from a $1.25 billion loss to a $903 million profit). Amazon’s new decentralized fulfillment network and layoffs are transforming profitability, allowing it to focus on exciting new growth engines.
Turning to new growth engines
Amazon’s cloud computing division, Amazon Web Services (AWS), will be key to its future growth. As with e-commerce, management has planned major layoffs here. And it’s paid off, with operating profit up 84% to $9.4 billion.
Investors can expect this segment to see continued growth over the next five years as it benefits from increased demand for AI, particularly from startups like Anthropic, which is using its leading cloud platform for storage and data management.
Amazon boasts its own custom AI training chips (Inferentia and Trainium), designed to attract customers to AWS cloud services by offering competitive training speeds at potentially lower costs.
But growth plans aren’t limited to AWS. According to the Financial TimesManagement wants to develop a new retail channel to ship goods directly from warehouses in China to U.S. freight forwarders. Delivery times will be significantly longer than Amazon’s usual one- to two-day wait time, but this will result in significant cost savings for consumers.
Unlike AWS, this new retail channel is unlikely to generate high-margin growth. However, it could help Amazon’s market share by cheap Chinese rivals such as Temu (a subsidiary of PDD holdings) or Shein.
Is It Still a Bargain to Buy Amazon Stock?
Long-term investors should always consider valuation when selecting a stock. This data shows to what extent your buy hypothesis has already been priced in by other market participants. For Amazon, a future price earnings ratio (P/E) multiple of 43 means the shares are valued slightly higher than the Nasdaq-100 average of 31.
This seems like a fair premium to pay, given the company’s profitability and new growth opportunities in AI technology. The stock looks like likely to outperform over the next five years. And it’s not too late to buy.
Should You Invest $1,000 in Amazon Now?
Before you buy stock on Amazon, here are some things to consider:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung 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.
Where Will Amazon Stock Be in 5 Years? was originally published by The Motley Fool
