Just because a stock has had a strong few years doesn’t mean it can’t have more upside. Anchoring to past price points can hurt investors, which is why investors need to keep an open mind to all stocks at all times. Otherwise, they can miss huge multiyear runs.
One company amid such a strong multiyear run is Amazon (NASDAQ: AMZN), as it’s up around 180% since the start of 2023. However, I think there’s room for more growth, and I’ve got three good reasons why the stock can still soar from today’s prices.
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Amazon is best known for its e-commerce platform, which has become the go-to place to shop online for goods. However, the real value in Amazon’s stock has come from the ancillary services that Amazon built to support that platform.
One of Amazon’s most successful and recently created divisions is its advertising wing, and its growth nearly propelled it to become one of its largest segments. In the third quarter, advertising generated $14.3 billion in revenue, up 19% from a year ago. That surpasses how much money Amazon generates from its various subscription services, showcasing how important advertising has become to the company.
Amazon is also expanding the use of its ad services by letting other retailers advertise on its commerce site. This could be a huge growth lever for Amazon, as it provides valuable advertising space to other retailers who want to promote their products on Amazon.
Advertising has become a huge part of Amazon’s investment thesis, and it’s slated to continue growing in the years to come.
Amazon Web Services (AWS) is another ancillary service that has become a huge part of Amazon. AWS is a cloud computing provider and holds the largest market share in this high-growth industry.
Cloud computing benefits from two trends right now. First is the general shift from on-premises computing to cloud computing. By moving tasks like storing data, hosting websites, and other jobs that require computing power to the cloud, clients no longer have to worry about maintaining expensive servers that quickly go out of date.
Second, artificial intelligence (AI) workloads are typically native to the cloud, and Amazon has some of the best tools available to build out AI solutions. AWS had a few tough quarters in 2023, but 2024 saw a resurgence in growth. Its third-quarter growth tied Q2 2024 as the best quarter in two years. However, that’s not the critical part of AWS’s financial contributions to Amazon.
The big kicker is that AWS makes up 60% of Amazon’s total operating income, making it a vital part of the company’s improving profits. AWS is a key segment for Amazon, and the growth tailwinds are still increasing.
While investors focus on revenue growth for young businesses that are rapidly taking market share, Amazon no longer fits that narrative. While it’s still gathering market share in many areas, investors want to see Amazon’s profits grow, and that’s exactly what they’re getting. Amazon’s profit margins are rapidly increasing, which is a result of several factors.
First, CEO Andy Jassy is laser-focused on making Amazon more efficient. Second, Amazon’s profit margin is bound to rise with high-margin businesses like advertising, AWS, and subscription services outpacing the growth of lower-margin segments like online and physical stores.
We’ve seen this effect lately, and there are no signs that Amazon’s margin is improving or slowing down.
AMZN Profit Margin data by YCharts
This allows Amazon’s earnings growth to far outpace its revenue growth, which led to impressive stock returns since 2023.
AMZN Profit Margin data by YCharts
Amazon is expected to continue this trend in 2025, although at a more moderate pace. In 2025, Wall Street analysts expect 11% revenue growth with 20% earnings per share (EPS) growth.
That’s still a strong performance from a giant like Amazon, and it all adds up to the stock still being a tremendous buy right now.
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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. Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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