Amazon's Future: Stock Outlook for the Next Five Years

Amazon (AMZN) wrapped up 2024 with impressive gains, climbing 44% over the previous year. This positive momentum sets the stage for 2025, where Amazon plans to optimize its e-commerce platform to capture more market share and utilize the advancements in artificial intelligence (AI) to enhance its cloud services.

As we look ahead, it’s wise to consider stocks with strong long-term growth potential. Let’s explore what Amazon might look like five years from now.

E-commerce: Increasing Market Share

In recent years, Amazon has steadily expanded its presence in the e-commerce sector. According to eMarketer, by 2024, Amazon was projected to exceed 40% of total U.S. e-commerce sales. Although it faces competition from smaller online retailers that emerged during the pandemic, Amazon has made significant improvements to its logistics networks to solidify its leading position.

The company has shifted from a nationwide warehouse model to a regional one, allowing it to compete more effectively against physical retailers like Walmart and Costco. These companies use their physical locations to enhance distribution, providing options like store pickup that Amazon currently lacks.

Instead, Amazon excels at offering fast and affordable delivery for its online orders. The company continues to add a wide range of products to ensure that its Prime members depend on its services. It is focusing on improving delivery speeds, which makes it more likely that customers will return for everyday purchases. In the third quarter, same-day order volumes rose 25% year-over-year, and these quick delivery options also happen to be cost-effective for Amazon.

Recently, Amazon tested a new warehouse model in Louisiana that integrates advanced robotics technology, cutting processing times by 25%, which will also lower costs. In five years, Amazon is expected to capture an even larger share of the growing e-commerce market, although growth rates may moderate as the company expands.

Cloud Computing and AI: Accelerating Growth

Amazon Web Services (AWS), its cloud computing division, commands 31% of the global cloud market, according to Statista. This places Amazon ahead of competitors like Microsoft, which holds 20%. While AWS’s lead is not as substantial as its position in e-commerce, it remains significant.

After a period of budget tightening due to inflation, clients are now ready to invest again, especially those looking to leverage generative AI technologies through AWS. Amazon has built a highly competitive AI offering that caters to a wide range of customer needs. Its strategy comprises a three-tiered approach: tools for developers to generate their own large language models (LLMs), the Bedrock system for mid-sized enterprises, and plug-in solutions for smaller businesses.

During the third quarter, AWS experienced a sales growth acceleration of 19% year-over-year, with generative AI already becoming a billion-dollar sector. AWS’s CEO, Andy Jassy, described it as an unprecedented opportunity with substantial long-term potential.

Over the next five years, AWS is expected to maintain its robust growth rate, contributing to most of Amazon’s operating income, which was 62% in the third quarter. This growth will help Amazon enhance its profit margins.

Streaming: Maintaining Competitiveness

Although streaming may not be the first service people associate with Amazon, it remains a competitive player in this arena. With its acquisition of MGM Studios, Amazon now has access to a wealth of premium content that can rival leading streaming services.

The company broadcasts Thursday Night Football, and the Cowboys-Giants matchup during the third quarter set a record as the most streamed regular-season football game ever. Amazon is also producing highly-rated series, including The Lord of the Rings: The Rings of Power.

In a bid to compete with other platforms like Netflix and Walt Disney, Amazon recently introduced an ad-supported streaming tier, enhancing its advertising capabilities.

In five years, Amazon is likely to remain competitive by continually adding new content, expanding its advertising offerings, and potentially pursuing additional acquisitions.

Other Ventures

Amazon's advertising segment has been its fastest-growing division. Access to hundreds of millions of Prime members who are actively shopping online makes Amazon an attractive partner for advertisers. The company’s data-rich, AI-driven systems also provide advertisers with effective tools to thrive.

Moreover, Amazon is actively pursuing new acquisitions and launching various products to create additional revenue streams. Recent investments in healthcare and its pharmacy business illustrate this broader strategy. The acquisition of AI firm Anthropic is expected to strengthen its position in the AI sector.

The Outlook for Amazon Stock

Amazon's stock surpassed market performances in 2024 and seems well-positioned to continue this trend. Despite its previous success, Amazon still has tremendous growth potential ahead. While its journey may differ from that of a new startup, it also carries lower risks. Investors can expect that Amazon stock will provide substantial rewards over the next five years.

Amazon, Stocks, Growth, E-commerce, Cloud