Meet the monster stock that continues to crush the market

Has this e-commerce and cloud tech giant found the formula to maintain a brisk rate of growth for years to come?

| More on:
Group of business people joining together silver and golden coloured gears on table at workplace.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Perhaps one of the notable stock market stories over the last year is the performance of Amazon (NASDAQ: AMZN). The e-commerce and cloud tech giant rose by nearly 50% over the previous year amid the continued success tied to e-commerce and the rise of artificial intelligence (AI) as the cloud continued to grow.

The question now is whether that growth can continue. Its market cap now tops $2.4 trillion, and even though its massive size makes high-percentage revenue increases a more difficult task, it appears to have found the formula to maintain a brisk rate of growth for years to come. Here's how.

What makes Amazon different?

Understanding Amazon's edge first means dividing its two e-commerce arms, North America and international, from the Amazon Web Services (AWS) segment, which leads its cloud and AI-related efforts.

On the e-commerce side, one has to remember that not all revenue is created equal. Amazon earned more than $450 billion in revenue in the first nine months of 2024. Of that, $171 billion, or 38%, came from its online stores. This revenue stream grew by just 6%.

However, these segments support Amazon's third-party seller services, advertising services, and subscription services, each of which grew revenue in the double digits.

Additionally, the North American and international segments combined reported operating income of $18 billion in the first three quarters of 2024. With that, its average operating margin was about 5.8% for the North America segment and 2.5% for international.

The relatively scant amount of operating income and the high fixed expenses of its online stores could mean that the online stores business loses money to support its less capital-intensive, tech-related businesses under that umbrella.

Tech also brings high margins to its AWS segment. In the first nine months of 2024, its $79 billion in revenue grew 20% but made up only 18% of Amazon's overall revenue.

Nonetheless, its $29 billion in operating income in the first nine months of 2024 was 62% of the $49 billion in operating income earned by Amazon during that time. That translated into an operating margin of 37%!

Hence, investors should look at Amazon as a series of comparatively smaller businesses rather than one giant conglomerate. That approach has helped the company grow at a relatively rapid rate despite its massive amount of revenue.

Growth projections

Moreover, none of its major businesses are done growing, which bodes well for the stock's future. Grand View Research forecasts a compound annual growth rate (CAGR) of 19% for the world's e-commerce industry and 21% for the global cloud computing market through 2030. Since Amazon is No. 1 in both of these industries, that probably means Amazon will claim the largest share of the potential growth in each industry.

Amid that potential, analysts believe Amazon will grow revenue by 11% in 2024 and at the same rate in 2025.

Admittedly, this is not as fast as its much smaller competitor, Shopify, which boasts a $137 billion market cap and is able to keep revenue growth above 20% annually for the foreseeable future. Nonetheless, it should generate enough revenue growth to translate into significant profit increases.

Additionally, its P/E ratio is about 50. While many investors will consider that expensive, Amazon has a long history of earnings multiples far higher than that level. It is also about half of Shopify's 99 P/E ratio, which may keep it attractive as investors look for places to invest additional cash.

Amazon is not done growing yet

Ultimately, neither a massive size nor a slower-growing online stores segment is likely to derail Amazon's growth.

Indeed, growth comes harder for entities with market caps in the trillions, and its online sales business has arguably grown dull.

However, that slow-growth business supports dynamic, faster-growing enterprises under its umbrella. Moreover, its cloud computing segment helps maintain its tech leadership, and, by all appearances, it can still grow rapidly while maintaining a No. 1 position in its respective industries.

Hence, while growth investors tend to prefer smaller enterprises, Amazon's e-commerce and cloud segments show signs of continued growth, undeterred by its considerable size. That factor should help the company crush the market for some time to come.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Shopify. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Shopify. The Motley Fool Australia has recommended Amazon and Shopify. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Hologram of a man next to a human robot, symbolising artificial intelligence.
International Stock News

Nvidia CEO Jensen Huang thinks Tesla has a multitrillion-dollar artificial intelligence (AI) opportunity up its sleeve (Hint: it's not robotaxi)

Tesla has several ambitions rooted in artificial intelligence (AI) to grow beyond the core car business.

Read more »

AI written in blue on a digital chip.
International Stock News

Better artificial intelligence stock: Palantir vs. Nvidia

Here's a look at Palantir and Nvidia to arrive at an answer.

Read more »

Couple watching Netflix.
International Stock News

Should you buy, sell, or hold Netflix stock in 2025?

The streaming stock is up an impressive 38% in 2025.

Read more »

asx shares involved with cloud tech represented by illuminated cloud on circuit board
International Stock News

Prediction: Amazon stock will soar over the next 5 years. Here's 1 reason why.

Amazon stock has been an incredible wealth builder for early investors who held on for many years.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

Where will Tesla stock be in 10 years?

Let's take a look.

Read more »

Hand with AI in capital letters and AI-related digital icons.
International Stock News

Where will Nvidia stock be in 5 years?

Nvidia stock is up by 750% in less than three years. Can its shares keep climbing?

Read more »

AI written in blue on a digital chip.
International Stock News

I predict this "Magnificent Seven" stock will crush expectations

Nvidia could sizzle as the other six stocks slump.

Read more »

A businessman hugs his computer and smiles.
International Stock News

10 reasons to buy and hold this tech stock forever

Despite Microsoft's decades of success, the future remains bright, and there is still plenty of room for growth.

Read more »