Amazon (AMZN -1.63%) is one of the best-performing stocks of all time, up more than 200,000% since its IPO in 1997. A $1,000 investment back then would have turned into more than $2 million today.
For early investors who held the stock, Amazon has delivered life-changing returns. It's done so by pioneering and establishing itself as a leader in two massive industries, e-commerce and cloud computing, and it has used that to support the growth of high-margin businesses like advertising, its third-party marketplace, and its cloud infrastructure service, Amazon Web Services.
However, past performance doesn't guarantee future returns on the stock market. Does Amazon still have the potential to set you up for life? Let's investigate.
Image source: Amazon.
Amazon's current prospects
For nearly all of its history, Amazon grew its revenue by 20% or more every quarter like clockwork. However, those days seem to have finally come to an end as the company has matured. Amazon is now the second-biggest company in the world by revenue behind only Walmart, and it's on track to generate $638 billion this year.
In the third quarter, Amazon's revenue rose 11% to $158.9 million, with more than half of its revenue coming from its North America segment, which is primarily made up of e-commerce.
Amazon settled into a pattern of revenue growth of around 10% since the end of the pandemic, and the company has shifted from a focus on revenue growth to instead expanding margins. For example, it's added advertising to Amazon Prime and added new fees on its third-party sellers, tightening its grip over a market it already dominates. It also scaled back its global expansion and is now turning a profit in international markets.
What works so well about Amazon's business model is that it's used low-margin businesses like its first-party e-commerce and its Prime membership program to grow its customer base and establish trust with consumers. From there, the company has been able to drive margin growth through its third-party marketplace, AWS, and advertising, all businesses that wouldn't exist without the success of the first-party e-commerce business.
Amazon seems likely to generate more bottom-line growth, but the company is also focused on new businesses, in particular AI. It has invested $8 billion in Anthropic, an AI start-up known for Claude, its AI chatbot that competes with OpenAI's ChatGPT. The company has made other investments like its acquisition of autonomous vehicle technology company Zoox.
The company's position in AI seems uncertain. It's developing its chips for training and inference, called Trainium and Inferentia, and it hosts a managed service for AI workloads called Amazon Bedrock. However, Amazon's AI strategy is not as compelling as many of its "Magnificent Seven" peers', some of whom seem to have been preparing for AI before the launch of ChatGPT.
Can Amazon deliver monster returns?
Amazon is a different company than it was earlier in its history, and its market cap now tops $2 trillion. At that valuation, the stock is starting to run into the law of large numbers problem.
If Amazon stock were to double from here, it would have to grow its market cap from $2.3 billion to $4.6 billion, which is not an easy feat. By comparison, it's much easier for a stock to double from, say, $50 billion to $100 billion.
Between its sky-high market cap and its slowing growth rate, Amazon seems unlikely to deliver life-changing returns at this point. That doesn't mean that Amazon isn't worth owning. The stock still looks like a good bet to outperform the market, given its myriad competitive advantages.
But if you're looking for a stock with the potential to be a 10-bagger, you're better off looking somewhere else. A smaller company with a faster growth rate will have a better chance of generating life-changing returns.
