The “Magnificent Seven” stocks control a disproportionate amount of the global technology sector. These seven stocks alone could cause massive swings in the overall market regardless of whatever the remaining thousands of stocks are doing. In fact, these seven stocks together account for a market cap of over $13 trillion, with six out of seven in the trillion-dollar bracket.
E-commerce king Amazon (AMZN 0.40%) is sporting a market capitalization of $1.8 trillion, and its stock is up 77% over the past year. At this level, can it still go higher?
Is Amazon just getting started?
Amazon already accounts for about 38% of all U.S. e-commerce, a breathtaking amount, and 31% of all cloud computing business, equally outstanding. So, you can’t say it’s just getting started, but considering the opportunity ahead, the growth runway still looks wide open.
In e-commerce, it recently renovated its logistics system from a national to a regional network. It keeps more of its higher-selling products in several warehouses throughout the country, making it easier, faster, and cheaper to get them to customers.
It seems like e-commerce growth possibilities are endless. E-commerce is expected to keep increasing as a percentage of overall retail sales, from 19.4% in 2023 to 22.6% in 2027, according to Statista. Amazon has a practically unbeatable moat in e-commerce. The faster it gets orders to customers, the more it pads that moat and will benefit from a continued shift to e-commerce.
In cloud computing, Amazon Web Services (AWS) continues to forge new deals with high-profile customers like Amgen and Salesforce. CEO Andy Jassy said the cost-optimization that’s been preventing customers from investing in their cloud program continues to “attenuate” and that AWS has a strong pipeline of new clients, as well as larger commitments for longer periods.
In some areas, Amazon really is just getting started. Its fastest-growing business right now is advertising, a recently launched segment. Sales were up 27% year over year in the fourth quarter. And it’s just getting its feet wet with healthcare.
AI is changing everything
Amazon is an artificial intelligence (AI) superstar, and it’s developed industry-leading tools and capabilities across the wide spectrum of its businesses.
That begins with AWS, where Amazon made waves last year with the announcement of a robust array of generative AI services for business clients. It continues to introduce and refine these tools, which allow developers and businesses to work faster and more efficiently.
AI has always been an important element of the e-commerce business. Amazon can pinpoint what its customers are looking for based on their browsing habits and strong AI, driving higher conversions. It’s also integral to advertising since advertisers get exposure to Amazon’s hundreds of millions of customers exactly when they’re already looking for what advertisers are selling.
What’s notable is that AWS and advertising are its high-margin businesses in comparison with e-commerce. As these businesses grow, they not only pad the top line but also increase the bottom line even more. Amazon’s stock price historically correlates with operating income, which is its preferred bottom-line metric, and rising operating income should lead to a correspondingly higher price.
This growth story isn’t over
Management expects 2024 first-quarter sales to increase by around 10% year over year and for operating income to double to around $10 billion. If it pulls that off, the stock price will likely follow suit. The company hasn’t given guidance yet for the remainder of the year, but tailwinds are getting stronger.
Amazon has a long growth runway in so many areas, and its stock could still create tremendous shareholder value.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
