If you’re like me, finding stocks that can beat the market year in and year out is the pinnacle of investing. Plenty of examples exist, and they can be found in all sorts of industries.
One company that has done a pretty good job of beating the market is Amazon (AMZN 1.80%). But after a strong 2024 (Amazon’s stock was up nearly 50% in 2024), can it have another dominant 2025?
Amazon has multiple unique business segments
While many investors know Amazon from its massive e-commerce site, that’s actually the least exciting part of the business for me. However, it generates the largest amount of sales for any division in the company (in Q3, online stores brought in $61.4 billion, up 7% year over year), but the growth just isn’t that rapid. Still, the sheer volume of sales gives Amazon strong cash flows, which allow it to invest in other portions of its business.
One of the more recent growth divisions Amazon has launched is its advertising services. Ads have grown dramatically over the past few years and have been its fastest-growing segment for many quarters.
In Q3, Amazon brought in $14.3 billion in ad revenue, up 19% year over year. That’s tied with Amazon Web Services (AWS) as the fastest-growing segment. However, the advertising wing does more than just boost Amazon’s growth; it has also expanded its profits.
While Amazon doesn’t provide specifics on its advertising margins, it’s safe to assume they’re quite healthy. Just look at other advertising giants like Meta Platforms or Alphabet. Both generate the majority of their revenue from ads and post operating margins in the 30% to 40% range. Considering that Amazon’s companywide Q3 operating margin was 11%, it’s safe to assume that ads have given Amazon a massive boost, both in revenue growth and profits.
The other key Amazon segment is AWS. AWS is Amazon’s cloud computing wing, and it has the largest market share among cloud computing providers. AWS started to worry some investors when it was only growing revenue in the low teens while its two largest competitors, Google Cloud and Microsoft Azure, were growing in the 20% range for most of 2023 and the start of 2024. However, AWS has rounded the corner and is starting to see a massive wave of demand from artificial intelligence (AI) workloads.
Amazon partnered with and invested in Anthropic, the maker of the Claude generative AI model. This has been a smart move, as Claude has emerged as a top option in the generative AI space. This move, combined with AWS’s reach, has reaccelerated AWS’s growth, as AWS grew 19% year over year in Q3. Furthermore, its operating income massively rose, increasing 50% year over year, which allowed AWS to post an impressive operating margin of 38%.
2024 has been a very successful year for Amazon, but don’t expect that success to go away just because the calendar flipped to 2025.
The stock has a lot of success baked into the price
For 2025, Wall Street analysts expect revenue to grow by 10.8%. For reference, they think 2024’s growth will be about 11%. On the earnings side, earnings per share (EPS) are expected to rise 20% in 2025, although projections indicate a 77% gain for 2024.
That said, 20% earnings growth is still impressive and is reason enough to own the stock, as long as it can be purchased at a fair price. Amazon currently trades at 36 times 2025 earnings, which is a bit pricey.
AMZN PE Ratio (Forward 1y) data by YCharts
Valuation is one of the main risks with Amazon’s stock, and investors shouldn’t ignore it. However, I think Amazon has enough growth on the horizon over the next few years that the expensive stock price will eventually work itself out.
With all of Amazon’s momentum heading into 2025, I wouldn’t be surprised if Amazon beats the market in 2025. However, I wouldn’t expect the stock to rise by nearly 50% again.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
