There are six publicly traded corporations with trillion-dollar valuations. With a market cap of roughly $1.9 trillion, Amazon (NASDAQ: AMZN) is the fifth-most-valuable company on this planet, trailing peers including Apple, Microsoft, Nvidia, and Alphabet.
For now, Apple, Microsoft, and Nvidia are steadily within the lead as each boasts a market cap in excess of $3 trillion. Nevertheless, I believe Amazon has one of the best probability of becoming Wall Street’s first $5 trillion stock.
Below, I’ll break down how artificial intelligence (AI) represents a lucrative growth opportunity for all of huge tech and why I believe Amazon will emerge because the king of the tech realm in the long term.
Amazon’s next big catalyst
For the last couple of years, investors have been bombarded with information, most of it vague, about AI and the way large corporations plan to integrate the technology into their businesses.
Guarantees of increased workplace productivity or enhanced data analytics don’t mean much unless you’ll be able to prove that these technology upgrades are well worth the money. Essentially the most obvious technique to try this is thru numbers.
Because the AI revolution took off, Amazon has invested billions of dollars in recent services. Specifically, the corporate invested $4 billion in a competitor to OpenAI, Anthropic. Moreover, the corporate has poured billions of dollars of capital expenditures (capex) into data center infrastructure.
Let’s take a have a look at how these investments are paying off and what that might spell for Amazon’s future.
Revenue growth is great, but rising profits are even higher
Despite the exciting prospects of AI, Amazon is facing other financial challenges. Macroeconomic forces, including stubborn inflation and rising rates of interest, have stalled Amazon’s growth in core segments reminiscent of e-commerce and subscription services during the last couple of years. Thankfully, changes to monetary policy, reminiscent of reduced rates of interest, should help ignite some renewed growth in these operating segments.
Where I believe investors are completely overlooking Amazon is in its cloud computing segment — Amazon Web Services (AWS). Because the company forged a relationship with Anthropic, revenue and profits from AWS have materially accelerated.
This is significant because nearly all of Amazon’s operating income stems from AWS. As the general profile surrounding AWS improves, so does Amazon’s entire business.
To place this into perspective, Amazon’s trailing-12-month free money flow grew 572% 12 months over 12 months to $53 billion as of June 30. At the top of the second quarter, Amazon held $89 billion in money and marketable securities on its balance sheet.
Why I believe Amazon may very well be the long-run winner
It’s obvious that Amazon is performing well, but why do I believe its growth prospects are much more robust than those of its peers?
For now, Nvidia is the leader of the graphics processing unit (GPU) and data center industries. Nevertheless, rising competition from AMD, Intel, and lots of of Nvidia’s own customers leads me to query how way more fuel Nvidia’s rocket really has.
Apple is probably the largest enigma within the AI landscape amongst the large tech corporations. The corporate has been slow to dive into the AI arena, and it’s too early to inform if its strategy around Apple Intelligence (the marketing moniker for Apple’s AI tools) can pay off.
Like Nvidia, Microsoft has been hailed as an early winner in AI adoption. This is basically due to the corporate’s multibillion-dollar investments in OpenAI — the developer of ChatGPT — and the swift integration of AI across the Windows operating system. While I believe Microsoft will proceed to grow at a powerful pace, its valuation has arguably already priced in lots of upside — especially considering Microsoft competes with Amazon and Alphabet within the cloud computing world.
And although Alphabet has made an incredible footprint on the web space due to its Google and YouTube platforms, rising competition within the promoting space has taken a toll on Alphabet’s core income. While Meta Platforms and TikTok are obvious threats, I believe Amazon’s promoting business is monumentally discounted and will further hinder Alphabet’s growth.
Given the above explanations, I believe each of Amazon’s major cohorts could face some serious growth deceleration in the approaching years. Alternatively, Amazon’s diversified ecosystem of e-commerce, subscriptions, grocery delivery, streaming, cloud computing, and more provide a level of immunity to competition that is difficult to match.
I believe Amazon’s revenue and profits will proceed to grow for years. As profitability and earnings rise, I believe Wall Street will eventually begin valuing Amazon over its peers.
For these reasons, I believe the corporate’s valuation multiples will begin to expand dramatically — resulting in rising share prices and ultimately a market cap value well in excess of other big tech corporations’.
Must you invest $1,000 in Amazon immediately?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Idiot has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Idiot recommends Intel and recommends the next options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Idiot has a disclosure policy.
Prediction: This Will Be Wall Street’s First $5 Trillion Stock was originally published by The Motley Idiot