Amazon’s Growth Prospects Continue Strong as New Opportunities Emerge

Many might find it surprising that Amazon (NASDAQ: AMZN) still exhibits significant growth potential, even after years of substantial revenue increases. The company’s initial public offering in 1997 was set at a split-adjusted price of approximately 8 cents. Currently, Amazon’s stock trades near $200, contributing to a market cap exceeding $2 trillion.

However, a closer look at Amazon’s diverse business landscape suggests that its growth rate may actually accelerate in the future. Notably, the primary driver for its increasing revenue and profits might not stem from its online shopping segment, which is often the first area people associate with Amazon.

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Let’s explore the key areas fueling growth.

Image source: Getty Images.

Amazon Web Services: A High-Growth Segment

One of Amazon’s standout growth areas is Amazon Web Services (AWS), its cloud computing division. As businesses increasingly depend on data, AWS has expanded quickly by offering services such as computing, servers, and data storage from its large data centers. The fourth quarter saw global cloud infrastructure spending increase by 22%, propelling AWS’s growth further.

Amazon’s size enhances its competitive advantage, considering that data centers require considerable space and energy. Consequently, larger players tend to dominate, and AWS remains at the forefront of this burgeoning sector with the highest market share. In the fourth quarter, AWS claimed a 30% market share, outpacing Microsoft‘s Azure at 21% and Alphabet‘s Google Cloud with 12%, as reported by Synergy Research.

The robust growth of AWS is evident, with Q4 sales climbing 18.9% to $28.8 billion, and profits soaring over 48% to $10.6 billion. Despite accounting for only 15% of Amazon’s overall sales, AWS contributes a remarkable 50% of the company’s operating profit.

As organizations rapidly adopt generative artificial intelligence (AI), AWS appears well-positioned to capitalize on this trend, potentially leading to accelerated sales and profit growth.

Additional Growth Opportunities

Apart from AWS, Amazon operates several other businesses within its North America and international segments. These include online marketplaces, physical stores, consumer devices (like the Ring camera), and advertising services.

All these areas have registered growth, but advertising stands out as a significant contributor. Amazon leverages its extensive customer base and data analytics to provide robust advertising solutions, enhancing this segment’s growth.

In Q4, advertising service revenue increased by 18% year over year, reaching $17.3 billion. Meanwhile, Amazon’s retail operations, encompassing online and physical stores along with third-party seller services, reported an 8% sales increase to $128.6 billion, thanks to efficient delivery options and physical stores like Whole Foods.

Investment Valuation

Amazon’s stock has seen some pullback over the past month as broader market concerns, including the impact of tariffs on the U.S. economy, weighed on shares.

As of March 18, the stock has dropped over 12% year to date, while the S&P 500 index has only fallen 4.5%. However, this adjustment follows a period of strong gains for Amazon.

This recent market trend has created a more favorable valuation for long-term investors. Currently, the stock is priced at a price-to-earnings (P/E) ratio of 35, down from 43 earlier this year. While this is higher than the S&P 500’s P/E of 28, Amazon’s notable growth prospects justify a premium multiple.

At present, an investment of $3,000 would allow you to purchase around 15 shares. However, this should not discourage you from considering Amazon, which is well-positioned for continued sales and profit growth in the future. Remember, incremental purchases of shares over time can also be an option.

A Timely Investment Opportunity

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*Stock Advisor returns as of March 18, 2025

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 also a board member. Lawrence Rothman, CFA holds no stake in any stocks mentioned. The Motley Fool owns and recommends Alphabet and Amazon. A disclosure policy applies.

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