Is Amazon About to Join the $3 Trillion Club?
Key Points
Amazon came within billions of hitting $3 trillion in market cap two weeks ago.
With AWS fueling accelerating growth on both ends of the income statement, multiple expectations should reset higher.
Now less than 6% away from hitting $3 trillion, the biggest obstacle keeping Amazon from crossing that finish line soon would be a sharp market pullback.
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When Amazon (NASDAQ: AMZN) hit an all-time high on May 5, it came within pocket change of topping a $3 trillion market cap. Even after a down day this past Friday, the leading online retailer's $2.84 trillion finds it a modest 5.5% from hitting the mark for the first time.
The move would put Amazon in an elite group of blue chips. Just four U.S. exchange-listed companies are currently members of the $3 trillion club. Unless you think Amazon will never exceed the all-time high it reached less than two weeks ago, the heavy favorite for this particular wager would be that the country's largest public company by trailing revenue will get there -- probably sooner rather than later. Let's go over the things that can make that happen.
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Image source: Getty Images.
Going long on a short road
Momentum is on Amazon's side. Even after its recent pullback, Amazon stock has risen 33% over the past three months. The market's initial dissatisfaction with the e-tail pioneer's fourth-quarter report -- more specifically, the earmarking of $200 billion for capital expenditures in 2026 -- has been recast in a more bullish light three months later.
Amazon's first-quarter update showed why the "Magnificent Seven" stock is going all in on beefing up its AI infrastructure investments. Net sales climbed 17% through the first three months of this year. That may not seem like much, but it's Amazon's healthiest top-line increase in almost five years.
The biggest driver behind Amazon's accelerating growth at a time when many companies are slowing down is its strong Amazon Web Services (AWS) platform. The cloud hosting business saw its net sales rise 28% in the first quarter, its strongest year-over-year move in more than three years.
AWS is riding the AI boom's demand for data centers and computing power. Amazon's business is in the right place, at the right time, but the cherry on top is that this is a high-margin business. Unlike its historically lean e-commerce operations, AWS is serving up an operating margin north of 35% for the third year in a row. It all adds up. AWS accounts for a little more than a fifth of Amazon's overall net sales, but over half of Amazon's operating profit.
That's not the only way the AI revolution is helping reset market multiples higher for Amazon while whittling down other tech industries. AI has been developing its own chips for AWS, and now it's starting to open up the product lines to third-party customers.
The shares aren't cheap, at a little more than 30 times forward earnings. And rightly so -- you should expect to pay a premium for a company with accelerating sales at the intersection of many expanding trends. Multiple expansion for a company picking up the pace on revenue and earnings growth makes sense. I'll wake you up when Amazon hits $3 trillion for the first time, but it probably won't take too long.
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Rick Munarriz 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.
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