Where will Amazon stock be in three years?

but Amazon (AMZN 1.08%) It’s been a fantastic business I’ve owned for the past 20 years, but not recently. The stock price has risen only 10% over the past three years (as of June 3).

This modest benefit is Nasdaq Compositereturn ofThis doesn’t get any further from the truth electronic commerce The cloud computing giant is one of the most dominant companies on the planet. So investors still need to keep this in mind.

Where will Amazon stock be three years from now?

online shopping

This is a surprising statistic, but approximately 38% of all online spending in the United States is through Amazon.com. This is the 2nd and 3rd place competitors (walmart and apologize, accounting for approximately 6% and 4%, respectively). That clue shows just how powerful a presence Amazon has in the e-commerce space.

I have no doubt that this will still be the case in 2027. With a relentless focus on customer obsession, Amazon offers shoppers millions of items at low prices. And thanks to our extensive logistics network, fast and free shipping is provided in a cost-effective manner that enhances the consumer experience. It was recently reported that Amazon has already added 16 million square feet of warehouse space this year in an effort to boost its delivery capabilities.

In the United States, online shopping accounts for less than 16% of total retail spending. This percentage has increased from 10% exactly five years ago. Assuming this slow, steady rise continues, this provides a nice long-term tailwind for Amazon to achieve more sales growth.

Amazon’s growth drivers

Amazon is arguably one of the most innovative companies. Despite being primarily known to the general public for its e-commerce business, there are other segments that will continue to expand at a rapid pace.

Many investors are familiar with Amazon Web Services (AWS), the company’s industry-leading cloud computing division. AWS typically sees double-digit revenue growth. And in its most recent quarter (Q1 2024, ending March 31), it reported an outstanding operating margin of 37.6%.

Investors should expect AWS (representing 16% of revenues in 2023) to become an increasingly important driver of revenue and earnings going forward. The shift from on-site technology infrastructure to off-premises combined with many customers’ desire for integration A.I It provides a nice tailwind for AWS by adding functionality to its operations.

Then there’s digital advertising, an area where Amazon has found tremendous success thanks to its popular online marketplace. In January, advertising was introduced to the Prime Video streaming service, providing another valuable asset for revenue generation.

During the last quarter, digital advertising generated $47.2 billion in annual revenue. This scale leaves it behind. alphabet and meta platform In terms of domestic market share.

Changes in Valuation

It doesn’t take much convincing to make you appreciate Amazon’s operations. It dominates a variety of industries and has meaningful growth potential.

However, investors should consider valuation in their analysis before deciding what to do with a stock. Amazon hasn’t invested much in the past three years, but its stock price is up 112% since the start of 2023. As a result, the valuation is not as attractive as it was about 12 months ago, when the stock was trading at a price-to-sales (P/S) ratio of just 2.4.

The current P/S multiple is 3.2. That may seem expensive, but it’s consistent with the stock’s 10-year trailing average. Given the potential for significant earnings and income growth over the next three years, investors will likely be rewarded by adding Amazon stock to their portfolio.