Amazon’s Growth Potential Continues to Shine Amidst Market Trends

Analyzing Growth and Value Stocks in Today’s Market

You can categorize stock investing into two styles: growth and value. Recently, growth stocks have led the pack, with the S&P 500 Growth index returning 37.9% over the last year through Nov. 22, outpacing the S&P 500 Value index by about 10.9 percentage points.

To find a company that can keep this positive trend going, one should look at Amazon(NASDAQ: AMZN), which still displays strong growth potential. This might be unexpected, considering the rapid pace of Amazon’s sales growth since its 1997 initial public offering (IPO)—annual sales skyrocketed from around $148 million to $470 billion during this time.

While it is unlikely that sales will continue at such a dizzying speed, Amazon remains my top choice for growth stocks.

Image source: Getty Images.

The Power of Amazon Web Services

Amazon Web Services (AWS) has been rapidly increasing its sales, a trend that is likely to continue. Growth may pick up speed as more companies adopt artificial intelligence (AI).

AWS, Amazon’s cloud-computing service, provides various capabilities from its data centers. Businesses are now increasingly using data to inform critical decisions, a pattern that will likely persist in the age of machine learning and AI.

This unit’s sales grew over 19% to $27.5 billion. Possessing the highest operating margin among Amazon’s divisions, AWS remains a crucial source of profit. Its operating income surged nearly 50% to $10.4 billion, contributing to 60% of Amazon’s total operating profit.

AWS’s large size gives it a competitive edge, resulting in a market share of 31% in this rapidly expanding sector. It leads ahead of Microsoft‘s Azure with a 20% share and Alphabet‘s 12% share, while several smaller competitors hold less than 5% of the market.

Expanding Business Horizons

Amazon’s other two segments, North America and international, cover diverse businesses, including online and physical retail, subscription services like Prime, and advertising.

While these areas have performed well, they do not match AWS’s profit margins. Sales in North America rose 9% to $95.5 billion in the third quarter, and international sales climbed 12% to $35.9 billion.

Within these segments, advertising and subscriptions stand out. With its vast data collection, Amazon is a valuable player for advertisers. Advertising services saw a notable 19% growth last quarter, and subscription sales, which include the popular Prime service, increased by 11% during the same period.

Investor Sentiment and Valuation

Amazon’s stock has surged 125.8% over the past five years, significantly outpacing the S&P 500, which gained 91.9% during the same period. Given the company’s strong performance, investors have placed a premium valuation on Amazon’s shares.

Currently, shares have a price-to-earnings ratio (P/E) of 42, compared to the S&P 500’s 31. This valuation reflects not only Amazon’s past achievements but also its leading position in a swiftly growing sector. AWS’s profitability should remain a driving force, complemented by Amazon’s other businesses, which may be less profitable but still attract significant consumer interest.

It’s justifiable to invest in a strong growth stock, even at a higher price. Starting with a modest investment of $3,000, which you can incrementally add to, could help you build wealth over time as your investment grows.

Exploring New Investment Opportunities

If you’ve ever felt that you missed out on investing in successful stocks, here’s an opportunity you won’t want to ignore.

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• Nvidia: If you invested $1,000 back in 2009, you’d have $352,678!
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*Stock Advisor returns as of November 25, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft and has recommended long January 2026 $395 calls and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.