Amazon (NASDAQ: AMZN) stock has had a phenomenal run over the last decade. As a result, the company has a huge market cap ($2.2trn) today.
I believe there’s potential for significant growth from here, however. Here’s where I think the growth stock could be in three years.
A tech powerhouse
Many people still see Amazon as an online shopping company. It’s far more than that today though.
These days, Amazon also has operations in cloud computing, artificial intelligence (AI), robotics, computer chips, video streaming, digital advertising, digital healthcare, self-driving cars, space broadband, and more. So, it’s essentially a technology conglomerate.
It’s the cloud computing (AWS) area of the business that excites me the most when I take a medium-term (three to five years) view. This is where a lot of the company’s growth is coming from today — cloud revenues were up 17% year on year in Q1 to $29.3bn.
I see a lot of potential ahead here. Not only should traditional cloud computing revenues continue to grow but so should revenues from all the different AI services on offer on the AWS platform. Note that Amazon wants to do what it did with online shopping with AI solutions. In other words, it wants to become an AI shopping platform.
If the company can continue to grow its top line while maintaining a focus on profitability, the share price could move significantly higher in the years ahead. In my view, there’s potential for annualised double-digit gains in the coming years.
Medium-term earnings forecasts
At present, Wall Street analysts expect Amazon’s earnings per share (EPS) to rise 12% this year to $6.17 and 17% next year to $7.24. Let’s assume these forecasts are accurate (they may not be).
Then, let’s assume that Amazon can grow EPS by 15% in both 2027 and 2028. That would give us a 2028 EPS forecast of $9.57.
Now, let’s apply a price-to-earnings (P/E) ratio 30 to that forecast (a little bit lower than the P/E ratio of 35 today). That gives us a price target of $287.
That’s roughly 37% above the current share price of $209. And it translates to a gain of over 11% per year.
I’d be happy with that return as a long-term investor in Amazon. I reckon that’s a higher return than the stock market as a whole will deliver over the next three years given the high level of economic and geopolitical uncertainty we’re facing.
Worth a look today
Now obviously, this is all very simplistic in nature. My earnings forecasts could turn out to be way off the mark, as could those of analysts.
If there’s a major consumer or business spending slowdown, earnings growth could stall. Alternatively, if Amazon decided to spend big on the AI buildout, the same thing could happen.
I’m very bullish on the stock, however, when I think about the next three to five years. This is one of the most attractive ‘Magnificent Seven’ stocks at present, in my view, and I believe it’s worth considering today.
