The $3 trillion valuation club is an exclusive group that only a handful of companies have ever joined. Currently, all four companies that have crossed this threshold are still in the club, with Nvidia, Apple, Alphabetand Microsoft all valued at $3 trillion or greater. And there’s another company knocking on the door: Amazon (NASDAQ: AMZN).
Amazon currently has a market cap of $2.5 trillion, so it’s only a stone’s throw away from entering the $3 trillion club. However, I think that’s just the beginning for the company since it has a lot going for it right now.
The first thing that comes to mind when you hear the name “Amazon” is its e-commerce platform, which sells nearly every product available. That’s its most forward-facing segment to the consumer and what allowed it to grow from an upstart to the $2.5 trillion behemoth it is today, but it’s not what I’m most excited about as an investor.
Two of Amazon’s most important segments are ones that few people interact with on a daily basis. Its most important segments are the Amazon Web Services (AWS) cloud computing business and its advertising division. Both of these are the company’s fastest-growing segments, which align with importance and performance.
AWS is capitalizing on two major tailwinds in cloud computing: artificial intelligence and a general migration to the cloud. Companies are starting to move away from on-premise computing equipment because it shifts the system maintenance to a third party and requires fewer equipment purchases.
AI is obviously huge in the broader market right now, and cloud computing providers play a significant role in delivering AI computing power to non-AI hyperscalers. Few companies have the resources to build large data centers to drive their AI aspirations, so they turn to a cloud provider like AWS to fulfill those needs. This is a tailwind that won’t decrease anytime soon, and it’s starting to show up in AWS’ results.
During the third quarter, AWS grew revenue 20% year over year, the best in multiple quarters. The cloud provider is a crucial part of Amazon’s profitability, too, as it accounted for 66% of total operating income during the third quarter. With a strong 35% operating margin, AWS’ continued success will be a key part of driving Amazon toward a $3 trillion market cap.
