In partnership with

Introduction

Investing in Amazon (AMZN) offers a compelling opportunity for young investors seeking growth, given the company's consistent performance and strategic positioning for future expansion.

📈 Historical Performance

Over the past decade, Amazon's stock has demonstrated remarkable growth:

• 1 Year: Increased by 47%

• 5 Years: Rose by 115%

• 10 Years: Surged by 1,060%

This trajectory showcases Amazon's ability to outperform the market, as evidenced by the S&P 500's comparatively modest gains during the same periods.

5 Key Growth Drivers

1. E-commerce and Improving Margins:

Amazon's North American e-commerce segment achieved a 5.6% operating margin in Q2 2024, up from 3.9% in Q2 2023, leading to a 58% year-over-year increase in operating income. Internationally, the company reported a $273 million operating profit, a significant turnaround from an $895 million loss the previous year. CEO Andy Jassy emphasizes ongoing efforts to enhance margins across all commerce sectors.

2. Advertising Revenue

Amazon’s advertising business is one of its fastest-growing segments, with year-over-year growth of at least 20% since the start of 2023. Given the high margins typically associated with advertising (just look at companies like Meta), this rapid growth is a significant driver of profitability. In 2023, Amazon generated $40 billion from its advertising segment—up from $31 billion the previous year. As this division continues to expand, it could play a crucial role in boosting Amazon’s bottom line and driving stock performance.

We put your money to work

Betterment’s financial experts and automated investing technology are working behind the scenes to make your money hustle while you do whatever you want.

Learn more

3. Amazon Web Services (AWS)

AWS isn’t just an add-on to Amazon’s commerce business—it’s the engine driving the company’s profits. In Q2 2023, AWS contributed 64% of Amazon’s total operating income. As AWS continues to grow, it will play a key role in boosting Amazon’s overall profitability. Investors sometimes overlook the significance of AWS, mistakenly thinking Amazon is just an e-commerce giant. But with the cloud computing market set to double in size by 2029, AWS will be a pivotal driver of Amazon’s future growth.

4. Artificial Intelligence (AI) Integration

Amazon Web Services (AWS), the company’s cloud computing business, is a profit machine. In Q2 2023, AWS grew revenues by 19%, driven by the rising demand for artificial intelligence (AI) workloads. AWS operates with a healthy 36% operating margin, and its dominance in the cloud industry shows no signs of slowing down.

According to Mordor Intelligence, the global cloud computing market is expected to grow from $680 billion in 2023 to $1.44 trillion by 2029—a compound annual growth rate of 16.4%. As AI and machine learning applications become more widespread, AWS is poised to capture a substantial share of this expanding market.

5. Free Cash Flow Generation

Thanks to a renewed focus on efficiency, Amazon has been generating record levels of free cash flow (FCF). In Q2 2023, Amazon reported $16.9 billion in FCF—a huge leap from the $10.8 billion in the same period last year. Massive FCF gives Amazon the flexibility to invest in new ventures, repurchase shares, or pay down debt, all of which can reward shareholders.

Amazon’s history of innovation—such as the creation of AWS, its advertising arm, and its logistics network—shows that it knows how to build successful businesses. With such a strong cash position, Amazon is well-positioned to develop its next big breakthrough.

Conclusion

Amazon's diversified business model, commitment to innovation, and consistent financial performance make it an attractive option for young investors seeking long-term growth. As always, it's essential to conduct thorough research and consider consulting with a financial advisor before making investment decisions.

Happy Investing!!