Will Amazon Be an Automatic Investment Choice in 2025?
Amazon (AMZN dropping -0.86%) has stood out as one of the top-performing stocks throughout history.
Being part of the prestigious "Magnificent Seven", Amazon has transformed into a global titan, with its stock skyrocketing over 200,000% since its Initial Public Offering (IPO). This means an initial investment of $1,000 back then would equate to a staggering $2,000,000 worth of shares today.
In essence, investing in Amazon stock during the majority of its existence is proven to be a wise decision, considering its significant influence in the revolutionary industries of e-commerce and cloud computing, both of which it spearheaded and still rule.
However, the question still lingers - will Amazon remain a profitable stock to invest in by 2025?
Amazon's Current Position
Amazon continues to lead in its primary sectors of e-commerce and cloud computing, but it's showing signs of maturity. Its growth pace may have slowed down compared to a few years ago, but its rate is still impressive considering its size.
During the third quarter, revenue soared by 11% to reach $158.9 billion, primarily fueled by its cloud computing division, Amazon Web Services (AWS), generating a 19% revenue increase of $27.5 billion.
Amazon's profit margins are expanding as well, thanks to the rapid growth of high-margin sectors such as AWS, marketplace, and advertising, which outperform the rest of the business.
In the third quarter, AWS operating income increased significantly from $7 billion in the previous period to $10.5 billion, resulting from expanded margins in the division. Meanwhile, revenue from third-party seller services increased by 10% to $37.9 billion, and advertising revenue grew by 19% to $14.3 billion.
As long as revenue growth continues to outpace the overall business in these categories, Amazon's profit margin should continue expanding. In the third quarter, its operating margin hit an all-time high of 11%, a testament to its commitment to long-term growth.
Predictions for 2025
As we near 2025, Amazon faces a challenge in its AI strategy. Compared to its peers in the "Magnificent Seven", Amazon's AI gameplan appears somewhat unclear.
Missed opportunities in AI chatbots have been glaringly evident. While Microsoft partnered with OpenAI and Alphabet launched Gemini, Meta Platforms established Meta AI, Amazon's in-house chatbots received mixed reviews. Consequently, Amazon collaborated with Anthropic, creators of AI chatbot Claude, investing $1.25 billion last September, $2.75 billion in March, and an additional $4 billion in November, bringing its total investment to $8 billion.
Amazon stated that these investments were fueled by Claude's rapid adoption within AWS. Additionally, Amazon is also focusing on its cloud infrastructure, with a managed service called Amazon Bedrock, designed to help users create and scale generative AI applications.
Looking ahead to 2025, expect Amazon to further invest in AI and develop its strategy. Although it doesn't necessarily need to dominate AI to sustain its e-commerce and cloud computing businesses, Amazon is keen to stay ahead of future technological shifts to avoid playing catch-up in 2025.
Investing in Amazon for 2025
Currently, Amazon continues to thrive, delivering remarkable margins and stellar results, while trading at a price-to-earnings ratio of 50, deemed a fair evaluation of its solid future profit growth potential.
It is expected to keep pouring resources into AI-related initiatives, but its dominance in e-commerce and cloud computing remains unshaken. Amazon looks set to carve out further gains in 2025, although its market cap of around $2.5 trillion along with its earnings multiple restricts its upside potential.
Despite this, Amazon remains an excellent choice for long-term investors, offering a combination of stable growth and sizeable market impact, making it an appealing prospect for many.
In light of its impressive growth and dominance in e-commerce and cloud computing, continuing investments in AI could further enhance Amazon's position by 2025. As a result, investing in Amazon stock might continue to be a profitable venture for those seeking long-term growth and market impact.
Given Amazon's current financial performance and fair price-to-earnings ratio, it is appealing to both short-term and long-term investors alike, who are attracted to its stable growth and significant impact on various market sectors.
