Examining Amazon: Is It Still a Top Investment?

Amazon (NASDAQ: AMZN) has become one of the most successful stocks ever, increasing by over 200,000% since its initial public offering in 1997. An investment of $1,000 at that time would now be worth over $2 million.

For early investors, Amazon has provided extraordinary returns by dominating two major sectors: e-commerce and cloud computing. This leadership has allowed it to expand into other profitable areas such as advertising, its third-party marketplace, and Amazon Web Services (AWS).

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Despite its past success, future returns cannot be guaranteed. The question remains: Does Amazon still hold the promise of life-changing investments? Let’s explore further.

Image source: Amazon.

Assessing Amazon’s Future

Throughout most of its existence, Amazon consistently grew its revenue by at least 20% each quarter. However, this trend appears to have slowed as the company has matured. Currently, it ranks as the second-largest company globally by revenue, right behind Walmart, and is projected to generate $638 billion this year.

In the third quarter, Amazon’s revenue increased by 11% to $158.9 million, with more than half coming from its North America segment, mainly driven by e-commerce.

Since the end of the pandemic, Amazon’s revenue growth has leveled off to around 10%. The company is prioritizing margin expansion over revenue growth. Actions such as adding advertising to Amazon Prime and introducing new fees for third-party sellers indicate a strategy to strengthen its already dominant position. Additionally, Amazon is turning a profit in international markets while scaling back its global expansion plans.

Amazon’s business model relies on its low-margin sectors, like first-party e-commerce and Prime memberships, to build customer trust. This foundation enables it to improve its margin growth through its third-party marketplace, AWS, and advertising services—all of which benefit from its initial e-commerce success.

While Amazon eyes future growth opportunities, particularly in artificial intelligence (AI), its strategy is still evolving. The company has invested $8 billion in AI start-up Anthropic, known for its Claude AI chatbot, which competes with OpenAI’s ChatGPT. Furthermore, Amazon has also acquired autonomous vehicle technology firm Zoox.

Although it’s making strides in AI, Amazon’s AI initiatives appear less remarkable than those of some competitors in the “Magnificent Seven,” who have been gearing up for AI advancements long before the rise of ChatGPT.

Will Amazon Generate Significant Returns Again?

Amazon today is quite different from its early days, with a market cap now exceeding $2 trillion. At this size, the company faces challenges associated with the law of large numbers.

For Amazon’s stock to double, its market cap would need to rise from $2.3 trillion to $4.6 trillion, a daunting task. In comparison, a stock increasing from $50 billion to $100 billion faces far fewer hurdles.

Given its sizable market cap and a slowing growth rate, Amazon may struggle to produce the life-changing returns it once did. Nevertheless, the stock remains a strong investment. Its many competitive advantages still make it a favorable choice for those seeking to outperform the market.

If life-changing returns are your goal, however, looking towards smaller, faster-growing companies may yield better results.

A New Opportunity Awaits

Have you ever felt you missed your chance to invest in top stocks? There is still time to act.

Occasionally, our analysts issue a “Double Down” stock recommendation for companies poised for rapid growth. If you worry you’ve missed out, now may be the ideal moment to invest.

• Nvidia: Investing $1,000 when we doubled down in 2009 would be worth $349,279!*
• Apple: A $1,000 investment from 2008 would have grown to $48,196!*
• Netflix: An investment of $1,000 in 2004 would now be worth $490,243!*

Currently, we are signaling “Double Down” alerts for three promising companies, making this a rare opportunity.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 16, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, sits on The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. For more details, consult The Motley Fool’s disclosure policy.

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