There's a high bar for investors to say that a company can set them up for life. But this is precisely what Amazon (NASDAQ: AMZN) might have done for those who invested heavily in the stock in the past. Since April 2005, shares have catapulted 10,590% higher, as of April 13 of this year.
That type of return is surely hard to beat. And it highlights the incredible rise of Amazon from a limited e-commerce platform to a tech behemoth with a dominant presence in numerous verticals.
The market cares what the future holds, though. If you buy this "Magnificent Seven" stock today, will it set you up for life?
Lucrative end markets
Amazon's online platform is what most investors are probably familiar with. The business sells anything you can think of on its site, with low prices and fast delivery a key focus.
According to Statista, 38% of all online retail sales in the U.S. are represented by Amazon. Given that e-commerce is still less than 17% of all retail sales domestically, there should still be a large opportunity for Amazon to capture.
Grand View Research believes the global e-commerce market will grow at a compound annual rate of over 11% through the rest of the decade. Amazon's scale, customer-care obsession, and well-oiled logistics footprint give it a considerable edge.
Cloud computing is another major growth engine. Amazon Web Services (AWS) went from a platform serving internal needs to an industry-leading enterprise that generated $115 billion of annual run-rate revenue in the fourth quarter.
AWS also positions the business to benefit from what looks to be a profound technological shift: artificial intelligence (AI). Companies of all sizes already depend on AWS for crucial IT capabilities. Looking ahead, it will become an important AI partner.
Amazon offers a wide range of AI features and tools to clients. And it plans $100 billion in capital expenditures this year to strengthen its AI position.
"We continue to believe that this world will mostly be built on top of the cloud, with the largest portion of it on AWS," CEO Andy Jassy said on the fourth-quarter 2024 earnings call.
Boosting the bottom line
Amazon's profits have been low historically because the business is known for investing whatever money it generates into growth opportunities. That has worked on the expansion front, as revenue is up sevenfold in the past decade.
Recently, however, management has shown an emphasis on boosting profitability. In 2022, the company reported operating income of $12.2 billion, for a measly margin of 2.4%. Those figures shot up to $68.6 billion and 10.8% in 2024.
The business rapidly expanded its workforce before and during the depths of the pandemic. Then in 2022 and 2023, it laid off tens of thousands of employees in an effort to increase operational efficiency. Investors should definitely appreciate improving profitability, but it's important that belt tightening isn't sacrificing growth potential in the years ahead.
Diversification is crucial
Investors who bought shares of Amazon two decades ago have certainly reaped massive rewards. The company today carries a $2 trillion market cap, and it's not that many years off from getting to $1 trillion in yearly revenue. It's not realistic to expect past returns to repeat in the future.
That's not to say that Amazon isn't a great business that deserves a closer look. The stock trades 24% below its peak after recent market volatility. And the valuation is compelling, at a forward price-to-earnings ratio of 29.2.
However, this stock isn't going to set you up for life. In fact, investors should refrain from thinking that a single business can achieve such a lofty goal. What matters most is to invest early and often, maintain a long-term time horizon, and focus on building a diversified portfolio of high-quality stocks that can help you handle the inevitable ups and downs.
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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 has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
