Where will Amazon stock be in 10 years?

The best stock market returns are built over decades, not quarters. This is why billionaire investor Warren Buffett cites his longevity as a key supporting factor in the tremendous growth of his portfolio over the past few decades. “It helps to start early and live into your 90s,” he said. Berkshire Hathaway Shareholders in this year’s annual report.

Growth stock investors can try to replicate some of his success by taking a much longer-term view on their investments. With that goal in mind, let’s look at the following. Amazon‘S (AMZN 0.46%) Prospects for success over the next 10 years. Where will your business and stock be by early 2034?

Service over product

E-commerce will always be a big part of Amazon’s business, but its future appears to lie in selling services. The segment is based on the Amazon Web Services (AWS) platform and includes items such as Prime subscriptions and ad sales. By the first three quarters of 2023, the sector had generated 56% of sales, or $226 billion, and was expanding at a much faster rate than the e-commerce sector.

It wouldn’t be a stretch to think that Amazon’s business will get better in 10 years. microsoft‘S (MSFT -0.05%) Yes, today. Sure, we’ll sell products, but almost all of our revenue will come from cloud and software services.

As investors have already seen over the past few quarters, this change represents a great opportunity to increase profitability and increase cash flow. Amazon likely won’t hit Microsoft’s 40% profit margins until 2034, but it will post much stronger results than its current 4% level. And positive stock returns will track these financial improvements.

monetization

If you think artificial intelligence (AI) isn’t a priority for Amazon, consider that the term “generative AI” appeared 18 times in its most recent earnings call. The technology is now deeply embedded in the AWS platform and is already helping many large customers with their own AI projects.

Amazon is also using it to improve the shopping and selling experience on its e-commerce store. For example, we curate product reviews to highlight factors frequently mentioned by previous buyers.

We don’t know how AI will develop over the next decade, but it’s likely that Amazon, along with other tech giants like Microsoft, will lead the transition into the computing era. For now, it’s also unclear what impact this technology will have on Amazon’s finances.

But early signs are encouraging. Generative AI is popular because it creates more value in a wide range of business processes. So even if this technology helps accelerate sales growth over the next decade, it’s likely to boost Amazon’s profit margins.

price fluctuations

Amazon is currently worth more as a retailer than as a software-as-a-service (SaaS) stock. The price-to-sales (P/S) ratio is close to 3. ebayThis is a P/S of 2x, which is higher than Microsoft’s annual revenue ratio of 13x.

If Amazon continues to shift its business toward selling services while capitalizing on the AI ​​boom, it should close the gap with Microsoft over time. A variety of factors, including slowing spending on information technology and a deepening economic downturn, could delay or even thwart these ambitions.

But Amazon stock appears poised to generate solid returns for patient investors over the next few years.