Forget Buying All Seven: The "Magnificent Seven" Stock Most Likely to Double by 2028
Key Points
Amazon's cloud business is booming.
The company should see continued margin expansion in e-commerce.
Shares look cheap, especially when you consider its Anthropic investment.
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I think the megacap technology businesses -- otherwise known as the "Magnificent Seven" -- are fantastic businesses. These include Nvidia, Tesla, Alphabet, Apple, Microsoft, and Meta Platforms. But it is the seventh member of the Magnificent Seven, I think, that has the best chance to double by the end of 2028: Amazon (NASDAQ: AMZN).
The technology player is a beneficiary of artificial intelligence (AI) and also enjoys massive economies of scale in its e-commerce delivery business. Here's why I think the stock can double by the end of 2028 if the AI spending boom continues.
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Amazon's cloud growth
The AI boom has been a huge boon for Amazon's cloud computing division, Amazon Web Services (AWS). Revenue grew 37% year over year last quarter and hit $148.4 billion over the last 12 months. If AWS' backlog growth is any indication, along with its massive capital spending plans, this revenue growth should accelerate in the quarters ahead.
AWS likely has a path to doubling by 2028, driven by massive spending plans from AI start-ups. It also has fantastic profit margins, at at 37% over the last 12 months. If AWS revenue can grow to $300 billion, segment profits will reach $100 billion even if margins slip back closer to 30%. That is more than the profit Amazon as a whole generated in the last 12 months.
Image source: Amazon.
Underrated e-commerce margins
We can't forget Amazon's other division, which houses its e-commerce platform, consumer electronics, and other services such as Amazon Prime subscriptions and advertising.
Combined, the North America and International segments now account for $627 billion in retail revenue. In the next few years, there should be continued growth from e-commerce taking share in markets around the world, along with margin expansion due to economies of scale. Plus, Amazon has seen strong growth in its high-margin advertising division, which was up 26% last quarter.
Lastly, it has expensive projects in development, such as the Amazon Leo satellite internet service. This is planning to begin operations later this year, and could be a nice growth engine that also helps profit margins at a greater scale. Amazon has also been investing heavily in areas such as faster delivery times, warehouse robotics, and self-driving vehicles. Once these technologies are implemented across its e-commerce supply chain, the business should see greater operating leverage and higher margins.
Overall, one should expect retail sales to continue growing in the double digits (both segments grew by 15% or more last quarter), with solid margin expansion. That could get the combined revenues to $829 billion after two years of 15% growth. Assuming profit margins can expand to 10%, that is $83 billion from the two segments two years from now.
AMZN EBIT (TTM) data by YCharts
Why Amazon shares can double
Right now, Amazon has had EBIT (earnings before interest and taxes) of $98 billion over the last 12 months. Combining my two estimates from the above section, I think this figure can close to double by 2028.
With a market cap of $2.7 trillion, Amazon trades at around 27x its trailing EBIT. Assuming this earnings multiple remains in 2028, then Amazon stock can close to double by the end of that year.
But close does not mean actually doubling. Where will the extra gains come from? Amazon has been a major investor in Anthropic and may own around 15% of its stock heading into Anthropic's upcoming initial public offering (IPO) in October or November. At an expected valuation of $2 trillion, Amazon's stake may be worth hundreds of billions of dollars. Add that to the forward returns, and I think Amazon is a fantastic bet for investors right now, and perhaps the best Magnificent Seven stock you can buy today.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
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