Amazon (AMZN) is an exceptional business with a strong presence in multiple massive, high-growth industries. Its $2.7 trillion market capitalization makes it one of the most valuable companies on Earth. However, the shares have disappointed investors, up only 47% in the trailing five-year period (as of Sept. 2) and trading 10% below their all-time record. This setup looks like a good opportunity for investors to buy a stake in the 'Magnificent Seven' stock.
Massive scale is an inhibiting factor to consider. In the past decade, Amazon's stock price climbed 561%, while net sales soared 560%, growing from $30.4 billion in Q2 2016 to $200.6 billion in the latest quarter. However, given its colossal enterprise size, future returns are unlikely to match past performance. Sell-side analysts expect revenue to reach $828.3 billion by 2026, and Amazon already surpassed Walmart in sales. Despite this, the stock has potential to outperform the market in the next decade. The prediction is that Amazon shares will rise 300% over 10 years, turning a $10,000 investment into $40,000.
Amazon’s revenue growth is expected to slow to around 20% annually, with sales potentially exceeding $1 trillion annually soon. However, its focus on operating leverage and scale will drive earnings growth. From 2025 to 2028, revenue is projected to increase by 53%, while diluted earnings per share are expected to climb at a much faster rate of 86%. This trend of bottom-line growth outpacing sales is likely to continue. The stock currently trades at an enterprise value-to-EBIT ratio of 29.2, which is historically inexpensive, adding potential upside.
Amazon’s business model is compelling. It dominates online shopping with its expansive ecosystem and efficient logistics, benefiting consumers with low prices and fast/free shipping. In the U.S., 40% of all e-commerce spending goes through Amazon’s marketplace. Digital advertising is a major contributor, with $37 billion in ad sales in the first half of 2026, up 25% year-over-year. Amazon Web Services (AWS) remains a critical growth driver, accounting for 21% of revenue and 60% of operating income in Q2, with accelerated growth in cloud services and AI capabilities.
Investors should consider Amazon’s 10% dip as a buying opportunity. Despite slower revenue growth, the company’s long-term potential remains strong due to its technological leadership, operational efficiency, and expanding revenue streams.
Source: The Motley Fool
