2 Reasons Amazon Stock Is a Buy and Hold Forever

Amazon (AMZN -0.48%) is one of the largest companies on earth. For much of the world, especially the U.S., it’s difficult to go a day without seeing one of the company’s drivers making a delivery. The company is so embedded in our lives that according to a recent poll commissioned by Harvard’s Center For American Political Studies, Amazon ranked as the most trusted institution in the U.S. — not company, institution. It ranked ahead of the U.S. Military, the Supreme Court, and the CDC.

That kind of trust is likely one of the many reasons Amazon’s stock has performed so well, up over 20% this year. Here are two reasons why it has more room to grow.

1. Bolstering its artificial intelligence prowess with key deals

Artificial intelligence (AI) has become the dominant investing theme of the last two years, helping the stock market recover from its nadir in 2022; the S&P 500 is up close to 30% since the public release of OpenAI’s ChatGPT-3 in November of that year.

While much of the growth has been focused on the semiconductor industry — Nvidia is up over 87% this year alone — cloud providers are another critical link in the AI value chain. Current AI models like ChatGPT run in the cloud, requiring far too much computing power for most companies to operate their own servers.

Amazon Web Services (AWS) has long been the dominant player in cloud computing. AWS currently owns 31% of the market — more than Microsoft Azure’s 25% and Google Cloud’s 11%. The competition is spending fiercely to gain ground, and Amazon lost 1% of the market last year, but the company is investing heavily to stem the tide, working to shore up its position as cloud leader in the age of AI.

AWS announced it reached a deal with Nvidia to offer access to its latest “super chip,” the GB200. Once released, it will be by far the most powerful chip on the market. Adam Selipsky, AWS CEO, stated the move will allow users to run “large language models faster, at massive scale, and more securely than anywhere else.”

Additionally, Amazon has now invested a total of $4 billion in Anthropic, the maker of ChatGPT-4 competitor Claude 3. AWS is the primary cloud computing provider for Claude 3, which, although it currently trails ChatGPT-4 in users, performs better in reasoning, math, and coding, according to the company. It’s important to take these claims with a grain of salt; after all, they come from the company itself and high performance on tests doesn’t always translate to the real world, but it is clear the company is innovating.

These investments have paid off; Amazon reported 17% year-over-year growth for the segment, reaching $25 billion for Q1 2024.

2. Amazon’s e-commerce business continues to dominate

Amazon’s core business, e-commerce, remains the largest source of revenue for the company and a key driver of the company’s growth. Amazon reported North America Q1 sales grew 12% year over year. The revenue in this area has steadily increased over the past few years as detailed by the chart below.

Table by author. Source: Company filings.

The company’s dominance in this arena cannot be understated; beyond the growing revenue, it currently owns 37.6% of the domestic market. Its biggest competitor, Walmart? Just 6.4%.

Although this share is expected to grow, reaching 38% next year, it’s important to note that 38% is the share it had in 2020. The company actually gave up ground during the pandemic’s peak, but it does not need to grow its relative share to see significant sales growth. The market as a whole is growing rapidly as consumers increasingly do their shopping online. The domestic market is expected to grow more than 50% by 2029, reaching north of $2 trillion. Amazon could lose market share and still see significant sales growth.

Amazon’s market dominance can be attributed to many things — brilliant leadership, strong innovation, robust internal systems — but for my money, it comes down to trust. When you order something on Amazon, the experience is seamless, and the order shows up — nearly without fail — when it is supposed to, often the next day. If the product is not to your liking or is not as advertised, a return is accepted, and no questions are asked. In short, Amazon does what it says it will do; it keeps its word. This is likely why it is the most trusted institution in the United States.

The future looks bright for Amazon

Amazon has a long history of delivering strong returns; its stock today is worth nearly 1,100% of its value ten years ago. Of course, past performance is never a guarantee of future performance, but a solid track record is far from irrelevant. And now the company has positioned itself to take advantage of two of the most important economic trends of our time. As a leader in AI computing and the reigning king of e-commerce, it is hard to see a future in which Amazon does not continue to succeed and deliver strong returns to shareholders.