In five years, where do you see Amazon stock trading?

The last few months have been great for Amazon stockholders. The stock is risen 45% in six months and 22% year-to-date. Shares rose to $1.93 trillion, surpassing 2021 highs as investors became more bullish about e-commerce profitability and cloud computing development owing to artificial intelligence  

Amazon stock has risen 100% in five years. How do the next five years look? Can it double again after this spectacular performance? Let's look.  

E-commerce profit inflection, growth ahead Amazon's e-commerce and global retail activities are growing rapidly despite the web store's approaching 30th anniversary. In 2023, North American sales rose 12% to $353 billion and international sales rose 11% to $131.2 billion.

Even though Amazon dominates e-commerce, only 15.6% of US retail sales are online. Amazon has several years to raise sales if that number rises continuously over the next 10 to 20 years and it maintains its market share.  

The source of Amazon's e-commerce expansion is the finest part. Last quarter, third-party seller services rose 19% and advertising services 26%. If they grow quickly, these high-margin segments can boost profit margins.

Indeed, we see that now. At 6.1% in the fourth quarter of 2023, North American operating margins have grown for six consecutive quarters and reversed from negative 0.3% in 2022. Investors might expect stronger e-commerce profit margins in 2024.  

A cloud computing revival Amazon Web Services (AWS) is its most profitable division. Sales were above $90 billion and operating profits $24.6 billion in 2023, giving it a 27.1% profit margin. In late 2022 and early 2023, AWS slowdown fears were high. Revenue growth declined from 28% in the 2022 third quarter to 12% in the 2023 second quarter as the company helped software customers cut expenses after the pandemic.

They were too pessimistic today. AWS sales rose 13% in the fourth quarter, lifting the stock. With AI services growing rapidly, 2024 and 2025 revenue looks good. These new products employ a lot of cloud computing, and AWS, Alphabet's Google Cloud, and Microsoft Azure are looking to lead this market. For instance, the company has a large deal with fast-growing startup Anthropic.  

We need e-commerce and AWS earnings predictions to predict the stock's five-year performance. Suppose e-commerce, excluding the unprofitable overseas business, can boost revenues by 12% annually and profit margins to 10% over five years. North American retail profits would reach $62 billion in 2028.  

Let's suppose five years of 12% growth and 27% profit margins for AWS. That would net AWS $43 billion in 2028. Combine all numbers and Amazon will make $105 billion in 2028, excluding overseas e-commerce and satellite internet services.  

The hardest part: What earnings multiple will Amazon trade at in 2028? A precise answer is unattainable, but given a vast competitive edge in cloud computing and e-commerce, I think the company deserves to trade at an above-market multiple of 30 times earnings. Multiplying $105 billion by 30 yields $3.15 trillion, a 66% increase from today's pricing. Amazon may have upside for long-term shareholders, though not a double.  

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