Where will Amazon stock be in 5 years?

If the last few years have taught us anything, it’s to never bet against American big tech. The stock is up 104% in the past five years, Amazon (NASDAQ: AMZN) navigated both the COVID-19 pandemic and the 2022 inflation crisis while preserving shareholder value (albeit a bumpy road). Let’s take a look at what the next half-decade could bring for the diversified tech conglomerate.

Strengthening the foundation

While Amazon has successfully diversified its business into cloud computing and artificial intelligence (Artificial intelligence)e-commerce remains its backbone. This vast segment began to underperform in 2022, due to COVID-era overexpansion and high inflation, which squeezed consumer purchasing power. But those challenges are now a thing of the past.

Amazon’s net sales in the first quarter rose 13% year over year to $143.3 billion. But more importantly, operating income more than tripled from $4.8 billion to $15.3 billion during the same period.

This transformation was partly powered thanks to significant cost savings in North American e-commerce (where management increased operating income by 455% to $4.98 billion) and international e-commerce (where losses widened from $1.25 billion to a profit of $903 million). A new decentralized fulfillment network and layoffs at Amazon are transforming its bottom line, allowing it to focus on exciting new growth drivers.

Transition to new growth factors

Amazon’s cloud computing division, Amazon Web Services (AWS), will be key to its future growth. As with e-commerce, management has planned significant layoffs here. And it paid off, with operating profits rising 84% to $9.4 billion.

Investors can expect this segment to enjoy continued growth over the next five years as it benefits from increased demand related to AI — especially from startups like Anthropic that leverage the industry-leading cloud platform to store and manage data.

Amazon prides itself on his Custom AI training chips (Inferentia and Trainium), designed to attract customers to AWS cloud services by offering competitive training speeds at potentially lower costs.

But the growth plans aren’t limited to AWS. According to Financial TimesThe company’s management intends to develop a new retail channel enabling the shipment of goods directly from warehouses in China to American carriers. Shipping times will be significantly longer than Amazon’s standard one- to two-day delivery time, but consumers will still be able to count on significant savings.

Unlike AWS, this new retail channel is unlikely to generate high-margin growth. But it could help Amazon protect its market share With cheap Chinese competitors such as Temu (a subsidiary PDD Holdings) or Shein.

The story continues

Are Amazon shares still worth buying?

Long-term investors should always consider valuation when choosing stocks because this data shows the extent to which your buy thesis has already been priced in by other market participants. For Amazon, AND price to earnings forecast A P/E ratio of 43 means that the company’s shares are valued slightly higher than Nasdaq-100 average 31.

This seems like a fair premium to pay, taking into account the dynamics of the company’s financial results and new development opportunities in the area of ​​AI technologies. Commodity looks like will likely continue to outperform over the next five years. And it’s not too late to buy.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Amazon. The Motley Fool has a disclosure policy.

Where Will Amazon Stock Be in 5 Years? was originally published by The Motley Fool