Amazon (AMZN 2.62%) has a market capitalization of $2.3 trillion, and its stock price has increased 44% over the past five years. Although the company’s valuation has managed to rise over the past five years, the cloud computing and e-commerce giant has the enviable distinction of being one of only two companies to be undervalued as one of the “Magnificent Seven” companies. S&P500levels will increase by approximately 80% overall.
Microsoft is the only company among the other MAG7 stocks that has lagged the benchmark index, with its share price up about 78% over the same period, only marginally underperforming the index. meanwhile, Nvidia‘s stock price has soared 1,330% over the past five years. The company’s leadership position in advanced graphics processing units (GPUs) used in artificial intelligence (AI) processes has led to its stock’s impressive rise.
The rise of AI has also played a big role in the market-beating rally of most Magnificent Seven stocks.
Image source: Getty Images.
At a time when many top technology companies have experienced significant AI-related revenue and profit growth, Amazon’s stock’s relative underperformance stands out in a big way. On the other hand, there are good reasons to bet the stock continues to lag.
Keep reading to find out why Amazon has soared 74% and could join Nvidia in the $4 trillion club.
Amazon is probably just beginning to benefit from AI
In 2025, Amazon will record sales of $716.9 billion; walmart Become the world’s largest company by sales. Although Amazon generates much better profit margins than Walmart, its level of net profit generation relative to sales is much lower than most companies in the Magnificent Seven. The reason for the margin difference compared to other technology leaders is that Amazon still derives most of its revenue from its e-commerce business, and online retail is a very expensive business.
Today’s changes
(-2.62%) $-5.73
current price
$213.21
Key data points
Market capitalization
$2.3 trillion
daily range
$212.53 – $217.32
52 week range
$161.38 – $258.60
volume
51M
average volume
48M
gross profit
50.29%
The much higher-margin Amazon Web Services division accounted for $45.6 billion of the company’s $80 billion in total operating income, although it accounted for only 18% of total revenue last year. The company’s Amazon Web Services cloud infrastructure division is already seeing sales growth supported by rising demand for AI and should continue to drive revenue growth, but there may be even more good news for investors.
Amazon is likely to be able to achieve even higher profit margins in its e-commerce business thanks to advances in AI and robotics. In addition to warehouse automation, the company has the opportunity to leverage autonomous driving and other delivery-related technologies to further reduce operating expenses.
As the world’s largest company by revenue, Amazon’s huge sales base offers the potential for significant revenue growth, along with lower costs and higher profit margins. While it’s highly unlikely that e-commerce businesses will record margins close to what AWS is achieving, betting that AI and robotics will significantly improve margins for online retail operations over the next five years actually looks like a pretty safe bet. The company is currently investing heavily to build out the necessary infrastructure, but if significant margin improvements begin to materialize, the market could quickly revalue Amazon and put it on the path to a $4 trillion market cap.
Keith Noonan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, Nvidia, and Walmart. The Motley Fool has a disclosure policy.
