Could Buying Amazon Stock Today Set You Up for Life?

Amazon (NASDAQ: AMZN) has become one of the best-performing stocks throughout history, experiencing an extraordinary increase of over 200,000% since its public offering in 1997. If an investor had put in $1,000 at that time, it would be worth more than $2 million today.

For those who invested early and held onto their shares, Amazon has provided remarkable returns. This success can be attributed to its pioneering role in two immense sectors: e-commerce and cloud computing. These sectors have enabled the company to support the expansion of high-margin businesses, including its advertising services, third-party marketplace, and Amazon Web Services (AWS).

However, it's important to note that past performance does not ensure future results in the stock market. The question remains: does Amazon still have what it takes to provide life-changing returns? Let's take a closer look.

Current Outlook for Amazon

Throughout most of its history, Amazon consistently grew its revenue by over 20% each quarter. Yet, this trend seems to have changed as the company has matured. Currently, Amazon holds the title of the second-largest company worldwide by revenue, trailing only Walmart, and is projected to generate $638 billion this year.

In the latest quarter, Amazon reported an 11% revenue increase to $158.9 million, with more than half of this revenue stemming from its North America segment, primarily its e-commerce operations. Since the pandemic, Amazon has settled into a growth pattern of approximately 10% and is now concentrating on expanding profit margins rather than just revenue growth.

The company has been strategic in enhancing its profit margins. For instance, it has introduced advertising features to Amazon Prime and added various fees for third-party sellers, thereby solidifying its hold on an already dominant market. Additionally, Amazon has curtailed its global expansion efforts and is finally turning a profit within international markets.

Amazon's business model thrives on combining low-margin businesses with lucrative ones. It uses its foundational e-commerce and Prime membership services to build a customer base and foster trust, which in turn allows it to increase margins through more profitable sectors like AWS and advertising—all of which are interconnected to its initial e-commerce success.

As Amazon gears up for future growth, it is also focusing on new technologies, particularly artificial intelligence (AI). The company has invested $8 billion in Anthropic, an AI startup specializing in AI chatbots, and has made other significant investments, including the acquisition of autonomous vehicle technology firm Zoox.

While Amazon is developing proprietary AI chips and has launched services like Amazon Bedrock for AI workloads, its overall strategy in this area seems less defined than that of some of its competitors in the industry.

Can Amazon Achieve Significant Returns Again?

The nature of Amazon has transformed significantly over the years, with its market cap now exceeding $2 trillion. Given this valuation, the company is beginning to confront the challenges that come with such a large size.

For instance, if Amazon’s stock were to double in value, it would need to increase its market cap from about $2.3 trillion to $4.6 trillion—a challenging endeavor. In contrast, it is easier for a smaller company to achieve a similar doubling from, say, $50 billion to $100 billion.

Considering Amazon’s high market cap and the slowdown in its growth, the company appears less likely to offer life-changing returns in the near future. However, this does not diminish the value of owning Amazon stock. The company still seems like a strong candidate for outperforming the market, given its multiple competitive strengths.

Nonetheless, if you are looking for an investment that might yield substantial returns, you may want to explore smaller companies with faster growth rates, as they are more likely to present opportunities for significant financial gain.

John Mackey, former CEO of Whole Foods Market, holds a position on the board of directors of The Motley Fool. Jeremy Bowman has stakes in Amazon. The Motley Fool also has investments in Amazon and Walmart and recommends both companies.

Amazon, Stocks, Investing