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Amazon’s Legacy: Billionaire Investors Bet on Bright Future
Amazon (NASDAQ: AMZN) has created numerous millionaires since its public debut. If you had invested $10,000 in this e-commerce and cloud giant on May 15, 1997, your investment would now be worth $20 million.
From 1997 to 2023, Amazon’s revenue demonstrated an impressive compound annual growth rate (CAGR) of 37%, climbing from $148 million to $574.8 billion. This remarkable growth was fueled by the transformation of its market, evolving from an online bookstore to a digital superstore, alongside the expansion of its cloud platform, Amazon Web Services (AWS).
Amazon may not replicate those millionaires-making returns in the next few decades. Currently, it ranks as the world’s fifth-most valuable publicly traded company, holding the top positions in both e-commerce and cloud infrastructure markets.
However, some billionaire investors are still increasing their stakes in Amazon. In the second quarter of 2024, Bridgewater’s Ray Dalio raised his holdings by 153% to 2.65 million shares, while Citadel’s Ken Griffin grew his investment by 17% to 7.69 million shares. Additionally, Tudor’s Paul Tudor Jones increased his stake by 28% to 336,000 shares. Let’s explore the reasons behind their optimism for Amazon and whether you should consider investing as well.
Amazon’s Short-term Challenges Are Lessening
Over the past four years, Amazon underwent rapid growth followed by a significant slowdown. The pandemic years of 2020 and 2021 saw a spike in online shopping and cloud services as more consumers and companies turned to digital solutions, providing a strong boost for Amazon’s businesses.
However, in 2022, growth rates slowed as pandemic-related support faded. Consumer spending fell due to inflation, and many companies scaled back on cloud spending due to rising interest rates.
Additionally, Amazon recorded a net loss that year, largely due to its investment in Rivian, an electric vehicle maker that struggled to find traction.
Metric |
2020 |
2021 |
2022 |
2023 |
First half 2024 |
---|---|---|---|---|---|
North American sales growth (YOY) |
38% |
18% |
13% |
12% |
11% |
International sales growth (YOY) |
40% |
22% |
(8%) |
11% |
8% |
AWS sales growth (YOY) |
30% |
37% |
29% |
13% |
18% |
Total sales growth (YOY) |
38% |
22% |
9% |
12% |
11% |
In 2023, Amazon’s e-commerce settled, while AWS faced ongoing challenges. This situation raised concerns since revenue from AWS traditionally supports the lower-margin e-commerce side.
Yet in the first half of 2024, AWS growth picked up as companies sought better infrastructure to accommodate emerging AI technologies. Meanwhile, Amazon improved delivery speeds, increased sales of essentials, and expanded into new international markets, boosting its e-commerce segment. The growth of its integrated advertising business further supported this expansion.
What Lies Ahead for Amazon?
Analysts project revenue and earnings growth of 11% and 63% respectively for the full year, with similar forecasts for 2025 at 11% and 22%. Given these growth expectations, Amazon’s stock appears reasonably valued at 32 times forward earnings and three times next year’s sales. Despite its large size, its sales growth remains impressive, and the company is keen on reducing costs to enhance profit margins.
Nevertheless, Amazon faces immediate challenges. Cheaper competing marketplaces like PDD‘s Temu and Shein pose threats to its e-commerce platform, and Microsoft continues to fiercely compete in the cloud and AI sector.
Despite this, Amazon’s management can leverage its scale to introduce new products, maintain pricing power, and lead in the growing e-commerce and cloud markets.
Is Now the Right Time to Buy Amazon?
While Amazon may not replicate its previous millionaire-making success soon, it’s easy to understand why big-name investors are increasing their shares. The company’s core operations remain strong, challenges are lessening, and valuations appear attractive.
Should You Invest $1,000 in Amazon Today?
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John Mackey, former CEO of Whole Foods Market, which is owned by Amazon, serves on The Motley Fool’s board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends both Amazon and Microsoft. The Motley Fool recommends specific options related to Microsoft. For more details, they have a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily represent those of Nasdaq, Inc.
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