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Think It''s Too Late to Buy Amazon? Here''s the Biggest Reason Why There''s Still Time. | The Motley Fool


🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source
AWS is the largest cloud service company in the world and could have the most to benefit as clients move to the cloud.

Think It's Too Late to Buy Amazon? Here's a Big Reason Why It Might Not Be
In the ever-evolving world of stock market investing, few companies have captured the imagination and wallets of investors quite like Amazon.com, Inc. (NASDAQ: AMZN). Founded by Jeff Bezos in 1994 as an online bookstore, Amazon has morphed into a global behemoth spanning e-commerce, cloud computing, digital streaming, artificial intelligence, and beyond. Its stock has delivered staggering returns over the years, turning early investors into millionaires and prompting many to wonder: Is it too late to jump on the Amazon bandwagon? With shares trading at all-time highs and the company's market capitalization hovering around $2 trillion, skepticism is understandable. However, a closer examination reveals compelling reasons why Amazon remains a strong buy for long-term investors. In this analysis, we'll dive deep into the factors that suggest the e-commerce giant's best days may still lie ahead, focusing on one particularly "big reason" that could drive future growth.
To set the stage, let's acknowledge the elephant in the room: Amazon's valuation. As of mid-2024, Amazon's price-to-earnings (P/E) ratio stands at around 50, which might seem lofty compared to the broader market's average of about 25. Critics argue that this premium pricing leaves little room for error, especially in a high-interest-rate environment where growth stocks have faced headwinds. Inflation, supply chain disruptions, and increased competition from rivals like Walmart, Shopify, and Alibaba have all posed challenges. Moreover, Amazon's core e-commerce business, while dominant, has seen slowing growth rates post-pandemic, with revenue increases dipping into the single digits in some quarters. These factors have led some analysts to label Amazon as "fully valued" or even overvalued, advising caution for new entrants.
But here's where the narrative shifts. The "big reason" why it might not be too late to buy Amazon boils down to its crown jewel: Amazon Web Services (AWS). Often overshadowed by the company's flashy retail operations, AWS is the undisputed leader in cloud computing, a sector poised for explosive growth in the coming decade. Launched in 2006, AWS has revolutionized how businesses store data, run applications, and scale operations. Today, it commands a market share of over 30% in the global cloud infrastructure market, outpacing competitors like Microsoft Azure and Google Cloud. In Amazon's most recent quarterly earnings, AWS generated $25 billion in revenue, marking a 17% year-over-year increase, and contributed significantly to the company's overall operating income of $15 billion—a stark contrast to the razor-thin margins in its e-commerce segment.
Why does AWS matter so much? For starters, the cloud computing market is still in its infancy. According to industry estimates from Gartner, global spending on public cloud services is expected to surpass $600 billion in 2024 and could reach $1 trillion by 2027. This growth is fueled by the digital transformation wave sweeping across industries, from healthcare and finance to manufacturing and entertainment. Businesses are increasingly migrating their operations to the cloud to cut costs, enhance agility, and leverage advanced technologies like machine learning and big data analytics. AWS is perfectly positioned to capture a lion's share of this expansion, thanks to its vast ecosystem of services, including Elastic Compute Cloud (EC2), Simple Storage Service (S3), and SageMaker for AI development.
Moreover, AWS is at the forefront of the artificial intelligence revolution, which could be the next mega-trend propelling Amazon's stock higher. With the rise of generative AI tools like ChatGPT, demand for high-powered computing resources has skyrocketed. AWS offers Bedrock, a fully managed service that allows developers to build and scale AI applications using foundation models from leading providers. Amazon has also invested heavily in its own AI chips, such as Trainium and Inferentia, designed to handle the intensive workloads of training and running AI models more efficiently than general-purpose processors. This positions AWS as a key enabler for the AI boom, potentially generating billions in additional revenue as enterprises adopt these technologies.
Beyond AWS, Amazon's diversified portfolio provides multiple avenues for growth. Take its advertising business, for instance. What started as a modest sponsored products feature on its e-commerce platform has ballooned into a $50 billion annual revenue stream, growing at a faster clip than even AWS in recent quarters. Amazon's advertising arm benefits from unparalleled data insights derived from billions of user interactions, allowing for hyper-targeted ads that rival those of Google and Meta. As digital advertising spending continues to shift online, Amazon is well-placed to erode market share from traditional players.
Then there's the e-commerce segment itself, which, despite recent slowdowns, remains a powerhouse. Amazon controls nearly 40% of U.S. online retail sales and is expanding aggressively internationally, particularly in emerging markets like India and Latin America. Innovations such as same-day delivery, drone shipments via Prime Air, and the integration of AI-driven recommendations are enhancing customer loyalty and driving repeat business. The Prime membership program, with over 200 million subscribers worldwide, creates a sticky ecosystem that locks in revenue through subscriptions, streaming (via Prime Video), and exclusive deals.
Financially, Amazon is in robust health. The company ended its latest quarter with $89 billion in cash and equivalents, providing ample firepower for strategic acquisitions, R&D investments, and share buybacks. Management has demonstrated fiscal discipline, recently announcing cost-cutting measures that improved operating margins to 10.1%—the highest in years. Free cash flow, a critical metric for growth companies, surged to $50 billion over the trailing 12 months, underscoring Amazon's ability to self-fund its ambitions without excessive debt.
Of course, no investment is without risks. Regulatory scrutiny is a persistent concern, with antitrust investigations in the U.S. and Europe probing Amazon's market dominance. Labor issues, such as unionization efforts at warehouses, could increase costs. Economic downturns might curb consumer spending, impacting e-commerce sales. And in the cloud space, intensifying competition from Microsoft and Google, who are pouring billions into AI, could challenge AWS's lead.
Yet, these risks seem manageable when viewed against Amazon's track record of innovation and adaptation. Historically, the company has thrived by disrupting itself—think how it pivoted from books to everything under the sun, or how AWS emerged from internal needs to become a standalone profit engine. Looking ahead, analysts project Amazon's earnings per share to grow at a compound annual rate of 30% over the next five years, supporting a forward P/E ratio that drops to around 35, which is more palatable for a high-growth tech leader.
In comparison to peers, Amazon stacks up favorably. While Apple's P/E is similar, it lacks Amazon's exposure to high-growth areas like cloud and AI. Tesla, another growth darling, trades at a much higher multiple despite volatile auto margins. Even Nvidia, the AI chip kingpin, has seen its valuation soar, but Amazon offers a more diversified bet on the tech landscape.
For long-term investors, the key takeaway is patience. Amazon's stock has experienced pullbacks before—dropping over 50% during the 2022 bear market—only to rebound stronger. If history is any guide, buying on dips and holding through volatility has been a winning strategy. The "big reason" of AWS, combined with Amazon's multifaceted growth drivers, suggests that the company's moat is wider than ever. It's not about timing the market perfectly; it's about recognizing enduring value in a company that's reshaping the future.
In conclusion, while it's natural to question whether it's too late to buy Amazon given its meteoric rise, the evidence points to untapped potential, particularly through AWS and its AI initiatives. Investors who dismiss Amazon now might regret it later, as the cloud computing and digital economy megatrends unfold. As Warren Buffett once said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Amazon fits that bill, making it a compelling addition to portfolios aimed at the long haul. Whether you're a seasoned investor or just starting out, now could be an opportune time to consider this tech titan—before the next wave of growth lifts it even higher. (Word count: 1,128)
Read the Full The Motley Fool Article at:
[ https://www.fool.com/investing/2025/07/24/think-its-too-late-buy-amazon-big-reason-why/ ]
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