If you buy Amazon with $10,000 in 2025, will you become a millionaire in 10 years?

Will a $10,000 investment in this e-commerce giant, which trades 29% off its peak, make you a millionaire by 2035? Here are the most important things investors should consider.

| More on:
A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.

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.

Investors allocate a portion of their hard-earned savings into the stock market in the hopes of achieving adequate returns over the long term. Sometimes, they get lucky and find a monster winner that significantly improves their financial well-being.

Amazon (NASDAQ: AMZN) falls into this category. Since its initial public offering in May 1997, the company's shares have rocketed 176,200% higher (as of April 17). A measly $570 investment 28 years ago would be worth a jaw-dropping $1 million today.

Will the future be just as bright? Will a $10,000 investment in this e-commerce giant, which trades 29% off its peak, make you a millionaire by 2035? Here are the most important things investors should consider.

Amazon's durable competitive advantages

Amazon's success can be attributed to its wide economic moat, which allows it to defend itself against competitive forces. Investors can be confident that this favorable setup likely won't change anytime soon.

The company's scale gives it a tremendous cost advantage. This is apparent in the e-commerce segment. Heavy investments to build out the logistics footprint and invest in technology and automation help drive down shipping costs, which benefits customers.

Amazon Web Services (AWS), the company's cloud computing service, has high fixed costs in terms of the network infrastructure needed to develop the platform. Thanks to its ability to leverage its expenses over a large customer base, AWS generates impressive profitability. AWS customers that have onboarded and become integrated with the various offerings also face switching costs.

Amazon also has a very powerful brand. This is true for both individual consumers and large business clients who expect top-notch features and a superior experience.

Lastly, there are network effects at play. As more buyers go to Amazon.com to shop, it makes the site more attractive for merchants. More merchants bring more selection, which increases the value proposition for consumers.

Taken together, it's difficult to envision a scenario where Amazon gets dethroned. It has sustainable competitive advantages across its entire empire that will continue supporting its success.

Looking at potential returns

In the past 10 years, Amazon shares are up about ninefold, which is a fantastic gain. Given the company's massive size, now at a market cap of $1.8 trillion, I'm confident that kind of return won't repeat between now and 2035. And for investors to turn a $10,000 cash outlay into $1 million in a decade, they'd need an unbelievable 100-fold gain, translating to an annualized return of 58%. This isn't a probable outcome.

Just because a seven-figure result isn't in the cards in 10 years, however, doesn't mean you should ignore this business. Amazon still looks like a smart stock to buy right now.

Besides the economic moat previously mentioned, the company has multiple secular trends working in its favor, like online shopping, artificial intelligence, and digital advertising, all growing end markets with huge potential in the long run. These tailwinds should allow Amazon to continue increasing the top line at a healthy rate, even though it raked in $638 billion in net sales last year.

The valuation is also at a reasonable level today. Investors can buy the stock at a price-to-sales ratio of 2.9. In the past five years, the average multiple has been 3.3, so the current setup presents a nice discount. It helps that shares have tanked since early February, due to heightened fears about the economy.

Spending $10,000 to buy Amazon stock won't make you a millionaire. But it's the right move for your portfolio.

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. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. 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

Happy family watching Netflix together.
International Stock News

Netflix stock gained 21.4% last month. Here's how.

Is Netflix on track for a long blockbuster run? Check out what's fuelling investor excitement about the media-streaming veteran right…

Read more »

An elderly man finds out he's made a mistake.
International Stock News

Warren Buffett's career in review: His worst investment decisions

Despite the wins, Buffett has also made plenty of errors in his long career.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
International Stock News

Warren Buffett's career in review: His best investment decisions

Buffett's best buys are simply astonishing.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Meta Platforms is ramping up data center and AI investments. Is the growth stock a buy now?

Let's take a look.

Read more »

A head shot of legendary investor Warren Buffett speaking into a microphone at an event.
International Stock News

Berkshire Hathaway stock plunges after Warren Buffett steps down. Is this a golden opportunity to buy?

Investors might be wondering whether they should be buying or selling Berkshire Hathaway stock now.

Read more »

Man with virtual white circles on his eye and AI written on top, symbolising artificial intelligence.
International Stock News

Where Will Alphabet Be in 5 Years?

Today, the lowest-valued stock in the "Magnificent Seven" is Alphabet, and it's not close.

Read more »

Silhouette of CEO standing in conference room looking out at cityscape.
International Stock News

Who is Warren Buffett's successor Greg Abel?

Buffett's successor has been in training for years.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
International Stock News

Do Google's antitrust woes make Alphabet stock a buy, sell, or hold?

In the past year, Google lost two major antitrust cases aimed at the heart of its business.

Read more »