Eight American technology companies valued at more than $1 trillion are currently listed on U.S. stock exchanges, but only three have so far joined the $3 trillion club.
Apple: $3.7 trillion Nvidia: $3.3 trillion Microsoft: $3.3 trillion
Amazon (AMZN -4.60%) is the fourth largest company in the world with a market capitalization of $2.4 trillion as of this writing. The company’s stock has soared more than 50% this year and is trading at an all-time high. The company’s strong cloud growth, surging profits and leadership position in artificial intelligence (AI) contributed to the strong performance.
Below, we explain why Amazon has a legitimate mathematical path to becoming the newest member of the $3 trillion club in 2025.
AI will accelerate cloud revenue growth this year
Amazon is the world’s largest e-commerce company, but it also leads the cloud computing industry through its Amazon Web Services (AWS) platform. From simple data storage to complex software development tools, we offer hundreds of services to help businesses operate in the digital age.
However, AWS is also home to many of Amazon’s AI efforts. Its goal is to dominate the three core layers of AI: hardware, large-scale language models (LLM), and software, and become a one-stop shop for developers and enterprises.
In the third quarter of 2024 (ending September 30), AWS generated record total revenue of $27.4 billion, an increase of 19% year over year. That growth rate will accelerate during 2024, and a big reason for that is AI.
Amazon CEO Andy Jassy said the AI business within AWS grew by triple-digit percentages in the third quarter compared to the same period last year. He also said the cloud sector is growing three times faster than it grew at the same stage in its lifecycle.
Returning to the three AI layers, AWS operates data centers equipped with Nvidia’s latest AI chips and rents that computing power to customers for a fee. The company has also designed its own chips called Trainium (for AI training) and Inferentia (for AI inference workloads). According to Amazon, developers can save 50% on training costs using Trainium1 compared to competing chips, and with the rollout of Trainium2, those savings are likely to increase.
Many developers prefer to use third-party off-the-shelf LLMs rather than building their own because it saves time and money. The Bedrock platform on AWS gives you access to the Titan family of LLMs built in-house by Amazon. However, Bedrock also hosts the latest LLMs from industry-leading companies like Anthropic and Meta Platforms, so customers are never short of options. This covers the second layer.
Finally, at the software layer, Amazon has developed an AI assistant called “Q.” This can answer questions about your organization’s internal data or prompt you to generate computer code to speed up software projects. According to Amazon, Q has the highest code acceptance rate in the entire industry and was able to save 4,500 years of development time (and $260 million) on just one internal software project.
Amazon’s profits are increasing rapidly
Amazon generates more than $5 trillion in revenue each year across all its businesses. Generating growth won’t be easy when the company is already the world’s largest player in e-commerce and cloud computing, and is quickly becoming a leader in other areas such as streaming and digital advertising. With each passing year, it becomes increasingly difficult to attract enough new customers to make a difference.
But by carefully managing expenses and improving efficiency, Amazon has ultimately achieved significant growth. Last year, the company transformed its e-commerce logistics network, dividing the U.S. market into eight regions and shortening the distance each order travels to reach customers. So far, this change has increased Amazon’s ability to accurately ship products across its fulfillment centers by 25%.
The company is investing heavily in technology to further improve efficiency. Inventions in robotics are speeding up the picking, packing, and shipping process, and AI-powered tools like Project Private Investigator ensure customers don’t receive defective products and reduce the frequency of refunds and returns. Masu. Thanks to all of these improvements, a record number of customers are now receiving their orders on the same day, and Amazon is steadily reducing the cost of serving them.
Overall, Amazon’s total operating expenses totaled $402.7 billion through the first three quarters of 2024, an increase of just 5.6% compared to the same period last year. Meanwhile, the company’s total revenue increased 11.2% to $450.1 billion.
As a result, Amazon’s net income increased by a whopping 98% to $39.2 billion, putting the company on track to achieve its highest annual profit ever.
Image source: Amazon.
Amazon stock actually looks cheap on a futures basis
Amazon’s net income for the first three quarters of 2024 translates to $3.67 in earnings per share (EPS). According to Wall Street consensus forecasts (provided by Yahoo), the company’s total EPS in 2024 will likely be around $5.14 when this year officially ends.
Based on Amazon’s stock price of $227.46 at the time of this writing, it has a price-to-earnings ratio (P/E) of 44.2. The NASDAQ 100 Technology Index has a P/E ratio of 34.9x, so this isn’t necessarily cheap. But Amazon deserves a premium thanks to its rapid EPS growth, dominance in industries such as e-commerce and cloud computing, and its leadership position in AI.
Now, let’s move on to next year. According to Wall Street consensus estimates, Amazon will generate $6.19 in EPS in 2025, giving the stock a forward P/E ratio of 36.8. This is roughly in line with the current position of the Nasdaq 100. However, Amazon stock would need to rise 20% next year to maintain its current P/E ratio of 44.2x.
That alone would give it a market capitalization of $2.9 trillion, but here’s where it gets interesting. In fact, Amazon has beat Wall Street’s EPS estimates by an average of 21% in each quarter of 2024 so far. If Amazon performs similarly in 2025, assuming a constant P/E ratio, Amazon’s market cap will almost certainly exceed $3 trillion.
I think it’s very likely that will happen, given Amazon’s current focus on efficiency, which will continue to be a tailwind for the company’s earnings. As a result, the company is well-positioned to join Nvidia, Apple, and Microsoft in the stock market’s most exclusive club in 2025.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
