Here is My AMZN Investment Thesis
$Amazon.com(AMZN)$ is the cheapest mega-cap stock now.
The stock has been flat since last December despite accelerating AWS growth and expanding profit margin.
I think it can easily double from here in the next 5 years.
Here is my AMZN investment thesis: 🧵
1/ AMZN has a strong market position in three fast-growing markets:
- Online shopping
- Cloud computing
- Digital advertising
It is the market leader in cloud and e-commerce and the third largest digital advertiser in the world.
All these segments are still growing fast.
Image
2/ Let's start with cloud computing, Amazon's cash cow.
AMZN is the leader in the global cloud business with 29% market share, while MSFT is at 22% and $GOOG is at 13%.
It looks like Amazon's market share is trending down here, but it's for a good reason.
Let me explain:
Image
3/ AMZN isn't as exposed to OpenAI's business risk as other players.
OpenAI has been a major driver of revenue for $MSFT since late 2022, and commitments from OpenAI make up a large part of the backlog.
This means that Azure's growth will take a big hit if OpenAI fails.
Amazon's AWS, on the other hand, isn't exposed to any concentration risk, yet its growth is accelerating.
Image
4/ AWS acceleration will continue.
SemiAnalysis expects that growth will reaccelerate to over 25% next year as Anthropic's two gigawatt-scale clusters reach full capacity.
Even if we assume just 20% annual growth in AWS for the next 5 years, this business will generate nearly $330 billion in revenue.
Assuming 30% net margin and 25x exit multiple, we'll get a $2.5 trillion market cap just from this segment.
Image
5/The Ad business is also rapidly growing.
This segment has grown 22% annually in the last five years and generated $65 billion in the last twelve months.
It's currently the fastest-growing business segment for AMZN, and it won't slow down anytime soon.
Image
6/ Digital advertising is expected to grow 9.8% annually by 2028.
However, the AMZN ad business has been growing way faster than the overall market, and there is no reason this trend will reverse.
Even if we assume just 10% annual growth, we'll get $105 billion in revenue from this segment in 2030.
Assuming a 35% net margin and a 25x exit multiple, this segment will be worth $918 billion in 2030.
Image
7/ The next one is e-commerce.
AMZN is dominating e-commerce in North America, and it's expanding rapidly in overseas markets.
This is the slowest-growing segment for Amazon, but it's a massive market, and there are significant opportunities for margin expansion.
Image
8/ AMZN generated $450 billion from e-commerce and physical stores in the last twelve months.
If we assume 9% overall growth for the blend of three businesses here, we'll get $694 billion in revenue from this segment.
Assuming a 10% net margin and a 20x exit multiple, this segment will be worth $1.4 trillion in 2030.
Image
9/ Lastly, subscriptions, Amazon's most underappreciated segment.
It's been growing 30% annually since 2014; however, the growth has slowed down to 10% lately.
Assuming 8% annual growth for the next 5 years, together with 20% net margin and 20x exit multiple, we get $260 billion market cap from this segment.
Image
10/ In short, in 2030, Amazon's businesses will be worth:
- Subscriptions:$260 billion
- Cloud Computing: $2.5 trillion
- Digital Advertising: $900 billion
- Retail and Seller Services: $1.4 trillion
Together they'll be worth nearly $5.1 trillion.
Note that this excludes many valuable assets of Amazon, such as Annapurna Labs, which makes Trainium chips; in the private market, it would be worth over $100 billion.
The whole company is trading at just $2.44 trillion today.
A doubling in 5 years may not look much, but given the quality of the company and its fundamental strength, it's hard to find higher returns on a risk-adjusted basis, especially now, given that the market is trading at 23x earnings.
I am long AMZN.
For SG users only, Welcome to open a CBA today and enjoy access to a trading limit of up to SGD 20,000 with unlimited trading on SG, HK, and US stocks, as well as ETFs.
🎉Cash Boost Account Now Supports 35,000+ Stocks & ETFs – Greater Flexibility Now
Find out more here.
Complete your first Cash Boost Account trade with a trade amount of ≥ SGD1000* to get SGD 688 stock vouchers*! The trade can be executed using any payment type available under the Cash Boost Account: Cash, CPF, SRS, or CDP.
Other helpful links:
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
- Robinshk·12-10 07:02GdLikeReport