Not long ago, there were no U.S. stocks worth $1 trillion. Apple broke that barrier back in 2018, and today, there are five that are worth $1 trillion or more. They are:
- Apple, maker of smartphones, tablets, computers, and other devices
- Microsoft, known for its enterprise software, Windows, and Azure cloud infrastructure service
- Alphabet, owner of Google, YouTube, and Android
- Amazon (AMZN 1.84%), the leader in e-commerce and cloud computing
- Nvidia, the newest member and the inventor of the graphics processing unit (GPU)
Of those five stocks, only two of them are currently members of the exclusive $2 trillion club. That's Apple and Microsoft. However, according to Wall Street, one of the others could be knocking on the door by this time next year. Analysts, on average, expect Amazon's stock to reach $176 a share in a year, implying an upside of 40%.
Based on its current market capitalization of $1.3 trillion, Amazon would be worth $1.82 trillion if it added 40% to its market cap, but it's also growing its share count through stock-based compensation. If it expanded shares outstanding by another 2% like it did last year, its market cap would rise to $1.86 trillion, just 7% below the $2 trillion milestone.
The path to $2 trillion
In some ways, that price target seems very reasonable. In fact, at its all-time high in 2021, Amazon's split-adjusted price was higher than the current consensus target, but it still didn't top the $2 trillion threshold.
Looking ahead to the coming year, analysts seem to expect an inflection in Amazon's profits, forecasting earnings per share of $2.21 for 2023 after a loss in 2022, and a 43% increase in 2024 to $3.15 per share.
CEO Andy Jassy has carried out a cost-cutting blitz like the company has never seen before. Not only did Amazon lay off 28,000 corporate employees, but the company has pulled the plug on projects like Amazon Care healthcare clinics, its Scout home delivery robot, and several of its brick-and-mortar concepts, including eight of its cashierless Amazon Go stores.
At the same time, Jassy seems committed to finding new ways to drive profits from Amazon's existing businesses. The company rolled out Buy with Prime, which allows Prime members to take advantage of Prime shipping benefits on platforms outside of Amazon with sellers paying for that privilege.
And it just announced that it would begin including ads in Prime Video content, potentially adding billions of dollars to the bottom line. The company also said it would begin charging merchants who didn't use its fulfillment services, though it later backed away from that plan.
Why it might not get there
Amazon faces a number of challenges as it tries to push toward the $2 trillion market-cap mark. The most recent is the Federal Trade Commission (FTC) lawsuit that alleges Amazon uses unfair and monopolistic business practices, including burying seller listings if they offer a product for less on other websites. The FTC is asking for an injunction on Amazon's practices and the suit could yield fines as well.
The company's second-quarter earnings report showed a significant improvement in profits, but it's also clear that the company is feeling the impact of the sluggish economy. Revenue growth at Amazon Web Services, its cloud computing service and the engine of its profits, slowed to just 12% in the quarter, its weakest growth rate ever.
Meanwhile, as its annual revenue approaches $600 billion, Amazon is also confronting the law of large numbers. Growing by even 10% at its current size entails adding $60 billion in annual revenue, which is not easy.
Given the state of the global economy and the Federal Reserve's recent forecast that said it would keep rates higher for longer, Amazon will likely need some help to get to $2 trillion. Its two main businesses, e-commerce and cloud computing, are both sensitive to the economic cycle.
If business and consumer spending remain challenged, Amazon stock is likely to be stuck in neutral. But if the economy shows clear signs of recovery, the tech stock could indeed break through the $2 trillion milestone.
Considering the latest signal from the Federal Reserve and signs of weakness in consumer and business spending, investors may be best off exercising patience with Amazon stock for now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.