It was only just four months ago that Amazon (NASDAQ:AMZN) joined the two-trillion-dollar club. The stock has gained 45% over the past year, despite a sickening 23% drop in August after a big second-quarter sales and earnings miss.
The internet retailer clawed its way back up and is scheduled to report third-quarter earnings after the market closes today. Although it had previously offered muted guidance below expectations, Wall Street seems to have warmed up again to Amazon’s stock.
Yet the stock has bumped up against a ceiling. AMZN shares would need to rise about 50% from where it trades today to break through the $3 trillion dollar level. But I’m of the opinion this will be no big deal and will happen much sooner than many expect. I believe Amazon will readily rise to the threshold and smash through it within the next six to 12 months, and it will do so riding on the cloud.
24/7 Wall St. Insights:
- Amazon (AMZN) only just crossed the $2 trillion valuation threshold in June, but the next milestone should come faster than many expect.
- Amazon Web Services has always been the e-commerce giant’s profit center and accelerating AI spending should bolster the growth of the business as a whole, pushing the company to a $3 trillion valution.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Head in the cloud
Amazon has been the premier cloud provider based on the company’s early entry into the space. Amazon Web Services was the e-commerce giant’s profit center long before the company generated any profits from its online retailing. It remains the biggest source of Amazon’s operating profits today.
Today, though, it has a lot more competition. Microsoft‘s (NASDAQ:MSFT) Azure and Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Google Cloud have not yet caught up to Amazon, but they provide intense rivalry and have won significant customers that might otherwise have gone to Amazon.
Yet Alphabet’s outstanding cloud business results the other day are a good indication Amazon should see a similar payoff. Google Cloud revenue surged 35% from the year ago period to $11.4 billion as artificial intelligence continues driving the business higher.
Microsoft had similar gains, with Azure and other cloud service revenue climbing 34% on a currency adjusted basis. Wall Street, though, was looking for more.
Growth at both companies is accelerating, indicating it’s not a zero-sum market. AI is expanding the universe for the hyperscalers and Amazon will gain accordingly.
AWS is in the groove again
Wall Street expects Amazon to report third-quarter earnings of $1.14 per share on revenue of $157.3 billion. That’s at the high end of the guidance the retailer laid out last quarter when it provided a range of $154 billion to $158.5 billion, implying 8% to 11% year-over-year growth.
Last year, Amazon saw AWS revenue of $23.1 billion, a 12% gain from the prior year’s third quarter, yet in the recent second quarter result, growth was accelerating again. AWS revenue came in at $26.3 billion, up 19%. Operating income was $9.3 billion, a 72% gain over the $5.4 billion it recorded last year.
Amazon president and CEO Andy Jassy said at the time, “We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth.”
Analysts expect AWS revenue to jump 19% again this time out to $27.51 billion from $23.06 billion last year.
The next $3 trillion stock
While Microsoft stock fell hard after earnings, despite the overall positive momentum of its business, Amazon could see its shares jump with an earnings beat.
Over the next six to 12 months as Amazon builds out its data center infrastructure, further integrates artificial intelligence in its operations, and focuses on meeting consumer needs for better, lower-cost products, expect the market to respond in kind.
Although we’re entering into Amazon’s wheelhouse of the Christmas shopping season, that could be offset by the need for greater AI spending. The overall result, though, should still be positive, putting the probability that AMZN stock will be worth $3 trillion by this time next year quite high.
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