Amazon (NASDAQ: AMZN) shares have been among the best performing investments to own during the pandemic. Since the beginning of 2020, shares in the e-commerce to advertising giant have increased in value by nearly 100%.
And it doesn’t seem to me as if the stock is going to slow down anytime soon. Even as sections of the economy has started to reopen, demand for the company’s goods and services has continued to increase. As such, the group has built on its pandemic success and boosted its global footprint.
But after the stock’s recent performance, Amazon shares are starting to look a bit pricey. At first glance, the stock’s valuation is enough to put me off the business.
Amazon shares continue to rise
I must say I’ve been caught off guard by Amazon’s growth over the past 24 months. I thought the business was reaching the limits several years ago.
Back in 2019, with revenues pushing $300bn, it looked as if the group would have to slow down due to the law of large numbers. To achieve revenue growth of 20% at this level, the company has to find an extra $60bn of sales a year. These are vast figures.
However, the group has continued to defy expectations. Sales jumped from $280bn in 2019 to $380bn for 2020. The company is on course to report revenues of around $430bn this year.
I think the company’s growth is only just getting started. In recent years, Amazon has reinforced its market position by expanding its logistics network and improving its customer offering.
Head and shoulders
Its relentless focus on efficiency and customer service means Amazon stands head and shoulders above competitors. The company has achieved this competitive advantage by investing tens of billions of dollars in infrastructure. This kind of spending is just impossible for many competitors to meet.
That’s what helps the business stand out, and I think it is one of the reasons Amazon shares have performed so well in the past.
At the same time, Amazon has invested billions in its cloud computing and marketing divisions. It’s now one of the leading providers of cloud computing services in the world. This division is far more profitable than its retail arm and is a significant growth engine.
Indeed, the global cloud computing market size is projected to grow at a compound annual rate of 17% between 2001 and 2025. This implies Amazon’s cloud computing arm can continue to grow.
Risks and challenges
That said, numerous threats are building against the enterprise, which could threaten the performance of Amazon shares. In the US, a potential antitrust investigation has been building against the company for some time.
Further, global policy makers have singled out Amazon in their quest to raise more tax from big tech companies. Increasing the tax liability will reduce the income it has available to reinvest its operations. This could hold up growth.
Despite these risks, I think Amazon shares have a bright future. The company’s competitive advantages are only growing stronger. I believe this indicates the firm can continue to dominate the retail and cloud computing markets. As such, I would buy the stock for my portfolio today.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.