Where will Amazon stock be in 3 years?

Amazon'S (NASDAQ:AMZN) The business has changed dramatically in recent years. The e-commerce giant has more than doubled its shipping infrastructure since 2021, expanded its cloud services division and increased profitability. These successes helped the stock reach an all-time high in mid-October with a valuation of $2 trillion.

It's hard to imagine how the next few years could bring so much good news to shareholders. But Amazon still has a long way to go, both in terms of growth and increasing profits. With this in mind, let's examine the factors that will determine Amazon's stock returns in the medium term.

Most of the recent enthusiasm for the stock comes from Amazon's success with the Amazon Web Services (AWS) platform, which generates the majority of its revenue. In 2022, companies slowed their new spending commitments on cloud services, but now they are back to aggressively moving their work to the cloud. This is great news for AWS, which almost doubled its profit in the first half of 2024. Operating profit jumped to $19 billion year-over-year.

This segment will be volatile over the next few years, which is to be expected if your business is dependent on broader IT spending trends. Still, AWS stock is likely to see a boost as this services platform continues to compete with rivals like… Microsoft and its Azure platform.

Meanwhile, expect the e-commerce segment to contribute more to the annual bottom line by 2027. Amazon has added hundreds of fulfillment and distribution centers since 2020 to meet higher e-commerce demand. This high level of spending need not be repeated in the next few years, even if sales volumes continue to rise. In other words, Amazon could finally start generating significant profits from its retail segment.

To be sure, the e-commerce business will likely be less important to the bottom line by 2027, thanks to AWS's faster growth. But the retail segment still makes Amazon a less risky business and gives the company a huge platform from which to launch products and services.

The biggest question going forward is to what extent Amazon can continue to allow profit margins to expand without neglecting its growth investments. Last year, AWS spending failed to offset slower retail capital investments. This means that the company is on the verge of generating a double-digit operating profit after barely breaking even on this figure for decades.

There's a good chance that profitability will continue to grow toward 15% of revenue in the next few years, assuming IT spending continues. This optimistic scenario could see Amazon shareholders reap mind-blowing returns even at the company's current market cap of $2 trillion.

The story continues