Why I’m not selling Amazon stock even after a 500% increase.

Already in 2016, I started collecting shares Amazon (AMZN -1.61%). Over the next eight years, I reduced my position only once and have now made a nearly 500% gain on the remaining shares.

Amazon is currently my largest position and makes up 6.5% of my portfolio. I was tempted to trim this share again, but I decided not to sell any more shares for four simple reasons.

1. The flywheel continues to spin

From 2016 to 2023, Amazon’s revenue grew at a compound annual growth rate (CAGR) of 23%, while adjusted distributed earnings per share (EPS) grew at a CAGR of 42%. This growth was driven by the development of online marketplaces and Amazon Web Services (AWS), the world’s largest cloud infrastructure platform.

Amazon has been subsidizing the growth of its lower-margin online marketplaces thanks to AWS’s growing operating profits, and this strategy has enabled it to expand its Prime ecosystem with loss-making strategies such as discounts, free shipping and digital streaming services. AWS’s support, along with the gradual expansion of its higher-margin advertising business, gives Amazon a wide moat against less diversified retail competitors. I believe the flywheel effect will continue to fuel Amazon’s expansion.

2. The growth rate is stabilizing

Amazon has experienced explosive growth during the pandemic as more people shopped online and more businesses signed up for its cloud services. However, as the pandemic has passed, these headwinds have subsided. Inflation and rising interest rates then limited consumer purchases and forced many companies to reduce cloud spending.

Amazon’s revenue grew only 9% in 2022 as it suffered a net loss as a result of its expiring investment in Rivian Automotive. However, in 2023, its revenue increased by 12%, returning to profitability. This acceleration was driven by the stabilization of retail segments in North America and abroad, which benefited from higher delivery speeds, higher advertising sales and expansion into higher growth markets. AWS growth has also accelerated again as more companies modernize their cloud infrastructure to support larger workloads, language-heavy models, and new generative AI services.

Analysts expect the company’s revenue and earnings to grow 11% and 56%, respectively, in 2024 as its core business stabilizes. Simply put, better days are ahead as the macro environment improves and cloud businesses continue to grow.

3. Margins are expanding again

Amazon’s operating margin fell from 5.3% in 2021 to 2.4% in 2022 as its e-commerce and cloud businesses grappled with macroeconomic challenges. However, the company’s operating margin increased to 6.4% in 2023 as it laid off tens of thousands of employees, tightly managed infrastructure costs and implemented other cost-cutting measures.

In its North American operations, Amazon generated more sales through higher-margin third-party sellers rather than using its lower-margin in-house marketplace, consolidated multiple deliveries into single packages, and lowered logistics costs by regionalizing its networks. International operating margins also stabilized it and reduced costs, while its advertising business generated higher revenues from sponsored products and streaming video advertising.

Analysts expect Amazon’s operating margin to expand to 9.7% in 2024 and then increase to double digits in 2025 and 2026 as it continues to improve its business. This is a clear signal that economies of scale are starting to take effect.

4. It has great long-term growth potential

Amazon stock may not seem cheap at 40 times forward earnings, but it has plenty of room to grow. According to Mordor Intelligence, the global e-commerce market is expected to continue growing at a CAGR of 16% from 2024 to 2029, while Precedence Research expects the global cloud infrastructure market to grow at a CAGR of 12% from 2023 to 2032.

As the leader in both markets, Amazon can continue to generate double-digit revenue and profit growth in the coming years. As it expands into adjacent markets, it should continue to crush smaller e-commerce and cloud companies.

Amazon is still a great long-term investment

Amazon is not immune to adverse macro factors, may become a target of regulators and faces many competitors. However, I believe it can overcome these challenges – as it has done many times in the past – and soar even higher in the next few years.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Leo Sun has positions at Amazon. The Motley Fool covers and recommends Amazon. The Motley Fool has a disclosure policy.