Amazon (NASDAQ:AMZN) It’s been a bit disappointing for investors lately. Its shares have gained just 34% over the past five years, far behind the S&P 50090% profitability.
But despite its lackluster returns, there’s still a lot to like about what Amazon is doing right now and where the company is headed. Here are some reasons why the company could still be a good long-term investment and whether Amazon stock could set you up for life.
Image source: Amazon.
Amazon Web Services (AWS) is the leading public cloud computing company with a 30% market share, compared to microsoft’s 20% and Google’s 13%. Microsoft has made some inroads into Amazon in recent years, but Amazon is investing heavily in artificial intelligence to stay on top.
The company recently spent $34 billion in the second quarter on capital expenditures, primarily to expand its cloud business, and analysts estimate it could spend up to $100 billion this year. The key to staying ahead in the AI race right now is to invest a lot of money to build the most advanced data center infrastructure and this spending could help Amazon leapfrog the competition.
And it will likely be money well spent, considering AWS has a 33% operating margin and generated operating revenue of $10.2 billion in the second quarter. Not only that, but global AI cloud computing revenue is estimated to reach $2 trillion by 2030, giving Amazon huge potential to expand further in this space.
Amazon has more competition than ever in e-commerce, but the company has maintained its dominant position. Amazon enjoys a 40% e-commerce market share in the US, while its rival Walmart take only 13% and Aim it barely registers 2%.
A big part of the company’s success comes from its Prime membership subscription, which gives members access to fast and free delivery, video and music streaming, photo storage, and more. The latest estimates put global Prime membership at 240 million.
Prime members are important to the company because they spend an average of $1,170 a year on Amazon, more than double what non-members spend, according to Consumer Intelligence Research Partners.
Advertising is perhaps one of the most overlooked aspects of Amazon’s business, but it’s becoming increasingly important: Amazon’s advertising sales rose 23% in the second quarter to $15.7 billion.
To put this in perspective, Amazon is the third largest advertising company in the US behind Alphabet and Goal. The company is estimated to have 17% of the digital market next year, up from less than 11% in 2021. With digital advertising sales in the US set to reach $429 billion by 2029, Amazon’s ability to successfully tap into this market could become increasingly important in the coming years.
Amazon stock has been a big hit for long-term investors, with gains of 2,800% over the past 15 years. But expecting similar results over the next decade is probably unrealistic.
Still, that doesn’t mean you should avoid adding Amazon to your portfolio. Given that Amazon remains the leading player in cloud computing, its AI investments are just beginning, and the company is already carving out a niche in advertising, Amazon still has a lot of potential to boost its portfolio in the coming years, even if it doesn’t set it up for life.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Target, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Could Buying Amazon Stock Today Set You Up for Life? was originally published by The Motley Fool
