Prediction: Amazon Will Be a $5 Trillion Stock By 2030

Key Points

• Amazon generates most of its profits outside of e-commerce.

• Cloud computing is experiencing two major tailwinds.

• Amazon's advertising space is among the best on the internet.

• 10 stocks we like better than Amazon ›

Amazon (NASDAQ: AMZN) has been one of the best-performing stocks in the market over the long run. A $10,000 investment in Amazon a decade ago is now worth $86,000. An even more extreme case is if you had invested $10,000 in Amazon the first time you used the service. I can remember using it around two decades ago, and if I had invested $10,000 in Amazon in 2005, I'd have over $1 million today.

However, those returns are in the past, and there's nothing I can do to go back and capture them. All that's left is to look toward the future, and I think it's still quite bright. Although the days of Amazon providing 100x returns over two decades are over, I think there are plenty of reasons to invest in the stock today.

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Although it's a $2.5 trillion company today, I think Amazon can double over the next five years to become a $5 trillion company by the end of 2030. That would be a double in just over five years, indicating that it will be a market-beating stock (the market tends to double every seven years). As a result, Amazon looks like a strong buy now.

Image source: Getty Images.

Amazon's future depends on AWS and its advertising services

When you think of Amazon, the first thing that comes to your mind is likely that e-commerce platform that sells nearly everything in existence. While that's the largest revenue driver for Amazon, it is far from the greatest profit driver. Instead, two divisions generate the vast majority of Amazon's profits. Luckily for investors, these two are also Amazon's fastest-growing.

The two divisions that are providing most of Amazon's profit growth are Amazon Web Services (AWS) and advertising services.

AWS is Amazon's cloud computing wing, which rents out computing power to clients that don't have enough of their own. Cloud computing has become increasingly popular, as it means that companies don't need to buy and maintain expensive server equipment. Instead, they can just rent it from a provider like AWS. This allows them to scale their usage up or down easily, making it a flexible option too.

Cloud computing is benefiting from two major tailwinds right now. The first is the general migration of workloads to the cloud for the reasons laid out above. This is a multi-year trend that will continue over the next decade as computing equipment ages out.

The second is artificial intelligence, which requires an incredible amount of computing power. Most companies don't have the 24/7 need for massive AI computing power in their facilities, so renting computing power from a provider like AWS is a smart idea.

Overall, Grand View Research projects that the global cloud computing market opportunity is expected to grow from $752 billion in 2024 to $2.39 trillion in 2030. That's a compound annual growth rate (CAGR) of 20%, so AWS' current 17% growth rate seems sustainable.

Another huge growth segment for Amazon is its advertising services. This has been a rising star for Amazon for a few years now, as it has some of the best advertising space on the internet. Customers are coming to Amazon looking to buy goods, so it's a no-brainer spot for companies to place ads.

While Amazon doesn't break out these divisions' operating margins, it's safe to say that they're likely quite high, as advertising-focused businesses like Meta Platforms consistently post operating margins in the 30% to 40% range.

With advertising services growing at an impressive 23% rate (the fastest-growing division in the company), this will continue to be a must-watch division.

Amazon's path to a $5 trillion valuation is fairly straightforward

For Amazon to be a $5 trillion company by 2030, AWS and advertising services will need to continue their outsized growth. As long as these two divisions are the fastest-growing within Amazon, its operating profits will grow faster than revenue, which has been the prevailing trend over the past few years.

AMZN Revenue (Quarterly YoY Growth) data by YCharts.

With Amazon, it's an operating income growth story, not a revenue growth one. The prevailing tailwinds that AWS and advertising services are experiencing likely won't be wrapped up by 2030, so it's not unreasonable to think that Amazon can continue growing its operating profits in the 20% to 30% range over the next five years.

Should Amazon grow at the lower end of that projection (20%) through 2030, Amazon's operating profits will total $210 billion by 2030. Currently, Amazon trades at 32 times operating profits. If that figure falls to 25 times operating profits, Amazon would be worth $5.3 trillion by 2030.

There's a bit of conservatism baked into this projection, with Amazon's valuation falling and its operating income growing on the slow end. I think this makes Amazon a great no-brainer investment now.

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Keithen Drury has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Amazon and Meta Platforms. The Motley Fool has a disclosure policy.