Amazon Aims for $3 Trillion Club with AI and Cloud Dominance

Nine American companies are valued at $1 trillion or more currently, yet only three have reached the elite $3 trillion milestone. Amazon (NASDAQ: AMZN) is poised to potentially join them before 2026 concludes. The tech giant stands out with its expansive e-commerce and cloud computing operations, rapidly establishing itself as a significant player in the artificial intelligence (AI) sector, driving further growth.

As of now, Amazon’s market capitalization is $2.2 trillion. Should it successfully enter the $3 trillion club, investors purchasing its stock today could see a 36% return within the next 18 months.

Image source: Amazon.

AWS: An Increasing AI Powerhouse

Amazon Web Services (AWS) is not just a leader in cloud computing; it has become integral to Amazon’s AI strategy. AWS focuses on dominating three vital AI layers: hardware (data center infrastructure and chips), large language models (LLMs), and software (including chatbots and other AI applications).

To maximize its profits, AWS builds centralized data centers and rents computing capacity to AI developers. It features infrastructure equipped with Nvidia’s top AI chips, alongside its own designed chips that significantly reduce costs. According to Amazon CEO Andy Jassy, the new Trainium2 chip may cut AI developers’ training costs by up to 40% compared to competitors’ chips.

Additionally, AWS has launched its LLMs under the name Nova, facilitating faster AI software development. The NovaSonic speech-to-speech model enhances voice AI capabilities. AWS Bedrock platform, meanwhile, grants developers access to third-party models from firms like Anthropic and Meta Platforms, providing a competitive edge to keep developers from switching to other cloud services.

Completing AWS’s AI offerings is Q, a virtual assistant that aids customers in data analysis and software development. Q is now regarded as the leading AI coding assistant, boasting the highest acceptance rate and accelerating programming tasks by up to 80%.

AWS: Amazon’s Profit Engine

In the first quarter of 2025, AWS generated $29.2 billion in revenue, reflecting a 17% year-over-year increase. Although it accounts for less than one-fifth of Amazon’s overall revenue of $155.6 billion, AWS contributed 63% of the company’s operating income of $18.4 billion.

Amazon’s main revenue stream remains e-commerce, which traditionally holds lower profit margins. The company’s commitment to competitive pricing has limited profitability. Despite this, restructuring in its fulfillment network has improved operating income by driving down costs.

Nonetheless, potential challenges lie ahead due to President Donald Trump’s tariffs. These tariffs could compel Amazon and its third-party sellers to raise prices or risk losses. Statista reports that over 70% of products sold on Amazon are sourced from China, placing them under a 30% import tariff. While future negotiations could alleviate this issue, the current scenario poses risks to Amazon’s online sales.

This makes AWS an increasingly crucial focus for Wall Street, as its performance directly influences Amazon’s overall valuation. Importantly, demand for data center services is outpacing supply, which should help maintain high profit margins.

Furthermore, Jassy noted that revenue from AI within AWS surged by triple-digit percentages in Q1 and is now on a multibillion-dollar annual trajectory, potentially supporting long-term growth for the cloud segment.

Amazon’s Path to the $3 Trillion Club

Amazon reported earnings of $1.59 per share (EPS) for the first quarter, a remarkable 62% increase from the same period last year. This brings its trailing-12-month EPS to $6.13, equating to a price-to-earnings (P/E) ratio of 33.5.

In comparison, Amazon’s valuation is more attractive than that of Nvidia and Microsoft, slightly higher than Apple:

PE Ratio data by YCharts

It can be argued that Amazon currently warrants a premium valuation. Its Q1 EPS growth outpaces Apple’s 8% and Microsoft’s 18%. Even Nvidia is expected to see only 42% EPS growth in the upcoming quarter, indicating that Amazon’s growth trajectory may be superior among the $3 trillion aspirants.

The average P/E ratio of Nvidia, Microsoft, and Apple stands at 38. Assuming Amazon’s P/E moves to this level, and based on Wall Street’s consensus estimate (courtesy of Yahoo! Finance) that it could achieve $7.27 in EPS by 2026, a P/E of 38 would suggest a share price of $276.26.

This price would imply a market capitalization nearing $2.95 trillion. Given that Amazon has routinely surpassed Wall Street’s EPS predictions by an average of 22% over the last four quarters, continued growth could lead to a market cap exceeding $3 trillion by next year.

Conclusion: A Critical Investment Opportunity

Investors often feel they may have missed moments to engage with high-performing stocks. However, current indicators suggest now may be a key time to invest.

Amazon’s strengths and evolving strategies offer compelling opportunities for growth, especially in its core segments of AI and cloud services.

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The perspectives presented here reflect those of the author and do not necessarily align with Nasdaq, Inc.