Amazon Stock Will Rise Over the Next 5 Years. Here’s 1 Reason Why

Amazon (NASDAQ: AMZN) is one of the biggest winners since the turn of the millennium, delivering great returns for long-term investors. On the other hand, the e-commerce and cloud computing giant is actually lagging the broader market in 2024.

While Amazon shares are up about 17.5% this year, S&P 500 index has delivered a dividend-adjusted total return of 19.5% at the time of writing.

While Amazon has underperformed its benchmark index this year, investors shouldn’t count on it staying that way long-term. In fact, the stock looks poised to deliver market-crushing returns over the next five years — and artificial intelligence (AI) could be at the heart of an incredible transformation.

Amazon can still achieve huge profit growth

Check out the chart below, which shows Amazon’s quarterly profit margin over the past five years.

As the chart shows, the tech giant’s operating margin has seen some big swings, but the trend is encouraging. Some key macro pressures began to ease in 2023, and performance over two quarters in 2024 appears to have the company on track for its highest annual operating margin ever. There are good reasons to think performance will continue to improve.

Thanks to Amazon Web Services’ (AWS) still-growing, higher-margin cloud services business and its fast-growing (and highly profitable) digital advertising business, total margins have expanded since 2023.

While the e-commerce business still accounts for the majority of total revenue, AWS and the digital advertising business should continue to account for a growing share of revenue, driving up margins and overall profits. Even better, there’s a good chance that the massive online retail business will become significantly more profitable thanks to the rise of AI and robotics.

Despite generating huge amounts of revenue, e-commerce is still a relatively low-margin business for Amazon. If automation can significantly reduce costs in this segment, the company’s profits and stock price should skyrocket.

Should You Invest $1,000 in Amazon 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. Keith Noonan 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.

Prediction: Amazon Stock Will Rise Over the Next 5 Years. Here’s 1 Reason Why was originally published by The Motley Fool