In fact, the company is increasingly encroaching on Nvidia’s turf.
Today, three stocks have market capitalizations of $3 trillion: Apple, Microsoft, and most recently Nvidia. Over the past decade, earnings growth across the technology sector has been incredible, and investors are becoming increasingly enthusiastic about these stocks. More recently, innovations in artificial intelligence (AI) have further fueled these shareholder returns.
Investors have seen stock prices continually exceed market capitalization benchmarks. But what about $10 trillion? I think there’s one stock that’s poised to reach this milestone before anyone else, and it’s not one of the three companies mentioned above.
Amazon (AMZN -1.02%) The company could become the first stock to reach a market capitalization of $10 trillion, making it once again the world’s most valuable company. Here’s why:
E-commerce benefits come from unexpected sources
Investors have long questioned the profitability of Amazon’s e-commerce business. With thousands of warehouse workers and delivery drivers, running a vertically integrated online marketplace is expensive. Margins on the core e-commerce business model are razor-thin and will continue to be so. However, the company has layered a profitable line of business on top of the e-commerce market.
First, the company has been in the Amazon Prime subscription business for many years. Subscription revenue for the past 12 months was $43 billion, up from just $2.76 billion in 2014. Amazon has the ability to roll these profits into the bottom line if it decides to stop reinvesting for growth.
Second, Amazon currently generates $54 billion in advertising revenue annually, primarily from sponsored listings on its e-commerce platform. This is highly profitable and can have a direct impact on your bottom line, similar to a subscription business.
Add the two together and you could be looking at nearly $100 billion in revenue, even if you don’t think core e-commerce, third-party sellers, and brick-and-mortar stores generate any revenue at all.
Why do we use these estimates? To illustrate the revenue potential of Amazon’s global retail business. These segments could generate nearly $100 billion in revenue in the near future. If sales continue to grow at double-digit rates, the sector’s profits could grow to $150 billion or even $200 billion within the next decade.
Enduring Advantage in Cloud and AI
Amazon’s most profitable business area is Amazon Web Services (AWS). The cloud computing giant generates approximately $100 billion in revenue and $36 billion in profits, or a 36% profit margin. That makes the company one of the most profitable companies in the world and is just a subsidiary of the Amazon complex.
Cloud computing revenue continues to grow, and is now driven even further by spending on AI. AWS seems well positioned to take advantage of this trend, as it’s also investing in its own computer chips to cover some of the huge costs it pays companies like Nvidia each year. Analysts predict that cloud computing spending will grow at a rate of 22% annually from 2024 to 2030 due to AI.
Assuming that AWS can maintain its profit margins and market share, 22% profit growth over six years will result in AWS generating more than $100 billion in profits in 2030. It’s an ambitious estimate, but achievable if the AI boom is real. It looks more and more like that.
AMZN Operating Margin (TTM) Data by YCharts
If you do the math, it’s 10 trillion dollars.
With all segments combined, it looks like Amazon could generate around $300 billion in profits in 2030. This number could be even higher if Project Kuiper’s new projects in healthcare, pharmacy, and satellite internet come to fruition. Either way, the company has tremendous momentum, which should only continue for the next five years.
With a market cap of $10 trillion and annual revenue of $300 billion, the price-to-earnings ratio is 33. Although this is a premium earnings multiple, I don’t think it’s unreasonable for Amazon to trade at this valuation. For reference, Apple and Microsoft are both currently trading on yields above 33.
With multiple tailwinds and rapidly expanding margins (operating margins rose to a record 10% in the past 12 months), Amazon will become the first company with a market capitalization of $10 trillion. I’m trying to become one.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Brett Shafer has a position at Amazon. The Motley Fool has positions in and recommends Amazon, Apple, 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.
