In fact, this company is increasingly encroaching on Nvidia’s turf.
Three stocks have now reached $3 trillion in market capitalization: Apple, Microsoftand the latest Nvidia. Earnings growth in the technology sector has been phenomenal over the last decade, which has made investors increasingly enthusiastic about the stock. More recently, innovations in artificial intelligence (AI) are further driving these shareholder gains.
Investors have seen the stock consistently surpass the trillion dollar market cap threshold. But what about $10 trillion? I think there is one stock primed to achieve this milestone before anyone else, and it’s not one of the three companies mentioned above.
Amazon (AMZN -1.02%) it could become the first stock to reach a market capitalization of $10 trillion and become the world’s most valuable company once again. This is why.
E-commerce profits come from an unlikely source
For years, investors have doubted the profitability of Amazon’s e-commerce operations. With thousands of warehouse workers and delivery drivers, many costs are associated with vertically integrated online marketplaces. The core e-commerce business model has thin margins, which will not change. However, the company has layered on a profitable line of business on top of the e-commerce market.
First, the company has a long-standing Amazon Prime subscription business. Subscription revenue was $ 43 billion in the last 12 months, from $ 2.76 billion in 2014. Amazon has the ability to allow the profit to fall to the bottom if it decides to stop reinvesting for growth.
Second, Amazon currently generates $54 billion in annual advertising revenue, primarily from sponsored listings on its e-commerce platform. This is a high-margin revenue that can go down immediately, just like a subscription business.
Add the two together, and you have nearly $100 billion in revenue potential even if you believe that core e-commerce, third-party sellers, and physical retail locations will not turn a profit.
Why use this estimate? To demonstrate the profit potential of Amazon’s global retail business line. The segment has the potential to generate nearly $100 billion in revenue in the near future. If revenue continues to grow at a double-digit rate, the segment’s earnings could expand to $150 billion or even $200 billion over the next 10 years.
A standing advantage in the cloud and AI
Amazon’s most profitable line of business is Amazon Web Services (AWS). The leading cloud computing giant has revenues of around $100 billion and revenue of $36 billion, or a margin of 36%. That makes it one of the most profitable businesses in the world, and it is only a subsidiary of the Amazon complex.
Cloud computing revenue is only growing and is now being boosted by AI spending. AWS looks good to take advantage of this trend and even invests in its own computer chips to take some of the huge costs for companies like Nvidia every year. Analysts estimate cloud computing spending will grow at an annual clip of 22% from 2024 to 2030, supercharged by AI.
If AWS can maintain its profit margins and market share, six years of 22% profit growth means that AWS will generate more than $100 billion in 2030. An ambitious estimate, but what can be done if the AI ​​boom is real, is that it increasingly looks like it.
AMZN Operating Margin (TTM) data by YCharts
Do the math to $10 trillion
Combining all these segments, it looks like Amazon has the potential to generate income of around $300 billion by 2030. This figure could even be surpassed if the new projects in health care, pharmacy, and satellite internet with Project Kuiper bear any fruit. Regardless, the company has a ton of momentum that should only continue over the next five years.
A market capitalization of $10 trillion on annual earnings of $300 billion is a price-to-earnings (P/E) ratio of 33. While that’s a premium earnings multiple, I don’t think Amazon would trade at this valuation. For reference, Apple and Microsoft are both trading at earnings ratios above 33 today.
With various tailwinds behind it and rapidly expanding profit margins (operating margins have surged to a record 10% over the last 12 months), Amazon is poised to become the first company with a market cap of $10 trillion.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has a position at Amazon. The Motley Fool has positions and recommends Amazon, Apple, Microsoft, and Nvidia. 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.
