It's generally wise for investors to opt for the slow-and-steady road to wealth. It's easier to get on base than to hit a home run, and steady success can create magical financial outcomes if you give it time. But that doesn't mean you can't occasionally aim for the stars; the right stock can set you up for life.
Sometimes, it's better to be lucky than good.
Amazon(NASDAQ: AMZN) is arguably the most famous example. If you had invested just $1,000 in the stock in the late 1990s, you'd have over $1.8 million today.
The company is a juggernaut now, worth almost $2 trillion. It's no longer the lottery-ticket stock it once was, but don't underestimate its ability to create life-changing wealth for long-term investors. Here is why Amazon can still make you generationally wealthy.
The Amazon Prime ecosystem
Amazon's roots are in e-commerce, where its Prime membership has become famous. There are an estimated 167 million Prime subscribers in the United States. With an estimated 129 million total households in America, it's safe to say that most people who shop online subscribe to Prime. After all, Amazon dominates U.S. online shopping with approximately 40% market share.
Prime started with e-commerce perks like free shipping, but the membership expanded as Amazon built out its business. Today, Amazon is in several consumer-facing business segments, including media, streaming, and healthcare. The more value Amazon adds to Prime, the stickier it becomes with customers, and the more Amazon can charge for it. It helps Amazon grow new products or services, and generates roughly $40 billion in recurring revenue at its size today.
Amazon has leaned into live sports to bolster its advertising business, scooping up rights to broadcast National Basketball Association and Women's National Basketball Association games starting in 2025. This adds to Amazon's existing National Football League rights. Live sports are a huge draw, strengthening Prime's appeal. I wouldn't be surprised to see Amazon continue expanding Prime into new industries.
Years of remaining cloud growth
It's hard to discuss Amazon without talking about Amazon Web Services, the cloud platform it launched in 2006 that has grown to become its leading source of profits. Amazon won in e-commerce because it consolidated the retail business model and used its massive size to offer superior service and price. Cloud is playing out similarly. Amazon amassed an enormous computing system housed in data centers. It rents out its computing capacity to customers, offering better performance for less money than it would cost companies to build and maintain their own.
But there are millions of businesses worldwide, so widespread cloud migration takes time. That's why AWS and other cloud platforms have grown for over a decade, and it's not over yet. Estimates from Mordor Intelligence estimate that the global cloud computing market was worth $587 billion last year and will grow by an average of 16.5%, reaching $2.29 trillion in 2032.
Amazon is the global leader with an estimated 31% market share, so it will benefit directly as the total "pie" grows. A mid-teens growth rate is impressive, so barring a collapse, I don't see why cloud can't grow comfortably for at least another decade. Artificial intelligence (AI) may add more upside than is currently known.
Putting this into numbers
To this point, I've highlighted Amazon's still-growing core businesses and the potential addition of emerging opportunities within Prime. It's time to put some numbers on this.
Today, analysts estimate that Amazon will grow earnings by an average of almost 28% annually for the next three to five years. For the record, shares trade at 38 times Amazon's estimated 2024 earnings. If Amazon comes anywhere near those estimates, it's hard not to like the stock at this price.
It only gets better if you plan on holding the stock for a long time (five years or more), because growth trends like e-commerce and the cloud seem poised to grow well beyond the next five years, which implies that Amazon should put up strong earnings growth for years to come. It's unlikely a business growing earnings at almost 30% annually will fall off a cliff. I could see earnings growth slowing over the years due to the company's sheer size, but it should still create tremendous long-term investment results, given its high growth rate today.
Amazon is a world-class company, and its constant push to expand and grow has created a monster that can still help set investors up for life over the next decade and beyond.
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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. Justin Pope 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.
