Without the ability of a prophet, no one can know what will happen in a year. But some stocks have been around long enough and have a steady enough business to be able to make a decent guess as to where they might be a year from now. I think that last year, a lot of people could have predicted that Amazon(NASDAQ: AMZN) would be where it is today, more or less.
Regardless of the fine points about where it will be next year, one thing to be fairly confident about is that Amazon has a long growth runway, and its stock is a reliable long-term winner. With that in mind, let's see what's happening at Amazon and where it could be at this time next year.
1. Improvements in e-commerce
Amazon operates many businesses today, but its core business is still e-commerce. Online store sales and third-party sales together accounted for 65% of the total in the 2024 fourth quarter, a sizable majority. This is Amazon's bread and butter, and it consistently upgrades the platform, adding new products and speeding up delivery times. It expanded its same-day delivery sites by 60% in 2024, including 140 U.S. metro areas.
At the same time, it's also working to optimize the fulfillment network, and improvements have meaningfully contributed to the operating income increases. It's focusing on its inbound distribution channels, or how it gets products into its regional distribution centers. The more availability in these centers, the faster it can get a shipment to any customer in the country.
Almost a year ago, I imagined where Amazon would be now, and I predicted that Amazon would have a greater product assortment, improve the speed of its delivery times, and possibly capture greater market share. It has done the first two quite well, and the third is up for debate; there are varying figures as to how much of the e-commerce market Amazon controls, although they claim around the 40% mark. I think it will improve in all of these areas again in another year. Amazon hasn't given a recent update about Prime customer numbers, but that number is likely to keep rising.
2. Progress in artificial intelligence (AI) and on the cloud
The part of Amazon that's gotten the market excited recently is generative AI, of course, and that's mostly on the Amazon Web Services (AWS) cloud platform. CEO Andy Jassy constantly talks about the staggering opportunity in AI and how Amazon is positioning itself to benefit from a shift to the cloud, where clients can do the most with the available AI tools. Amazon is the global leader in cloud computing and is investing more than $100 billion in AI this year.
Jassy has taken over Jeff Bezos' role as Amazon's visionary leader, and he sees a future where AI is built into every new app and program, like storage and databases are the building blocks today. The AI piece is going to be built on the cloud, "with the largest portion of it on AWS." Amazon has a partnership with Nvidia, but it's also creating its own chips to handle AI workloads at a budget-friendly price, in addition to the software tools available to AWS customers.
AWS was back to being the fastest-growing Amazon segment, accelerating to a 19% year-over-year sales increase in the fourth quarter.
One thing to note is that Jassy cautioned that growth is going to be lumpy over the next few years. The market never likes that, but expect some quarters to be better than others, and plan for Amazon stock to reflect that.
3. New ventures and businesses
Last year, I suggested that Amazon could have some new businesses or other surprises, but that wasn't really the case over the past year. Instead, Amazon concentrated its investments in AI and in upgrading its existing businesses.
Advertising remains a growth business for Amazon, although it fell to second place as Amazon's fastest-growing segment behind AWS, with an 18% year-over-year increase in the fourth quarter. Don't take that the wrong way -- it has a $69 billion run rate, up from $29 billion four years ago, and its new Prime video ad-supported network is progressing well.
As Amazon invests in the massive opportunity of its generative AI business, I can see it continuing this trajectory of focusing on it in place of finding the next big thing; it already has the next big thing. I envision more updates to all of its businesses, with expansion into areas on the back burner for 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. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
