Go big or go home. That’s my motto today.
See, we’re coming up on the fifth anniversary of a bold call I made about Amazon.com Inc. (Nasdaq: AMZN).
And it all had to do with my thesis that high tech is vital to our economy and your investment portfolio. That the road to wealth is paved by tech…
Of course, my belief in tech as a key force behind the ongoing success of – heck, the mere existence of – just about any company on the market remains as strong as ever.
As with the doubters you still see today, many in the financial media were skeptical that the “King of E-Commerce” really could hit $1,000 when I predicted as much on Oct. 30, 2013.
At the time, four years into a huge bull market, TV analysts were spouting off about how a “tech bubble” was about to burst.
But I strongly disagreed. I argued that tech had become the key driver for the U.S. economy in a way we hadn’t seen before. That’s why I said that Amazon would roughly triple from the $332-per-share that it traded for the day that column ran.
Well, Amazon crossed the $1,000 threshold way back on May 31, 2017, and the stock this morning hit an all-time high of $1,980.45.
But if you think gains like these are a thing of the past for Amazon, and that you’re too late to profit from this tech juggernaut, I’ve got news for you.
Its share price isn’t stopping here.
In fact, it’s still on the rise.
And that means it’s time for another bold call…
Jim Cramer Gets It Wrong
I remember clearly the day Amazon crossed the $1,000 mark: May 31, 2017.
TV host Jim Cramer used that milestone to warn investors of an imminent decline.
The host of CNBC’s Mad Money mostly looked at the price of the stock. He said that “psychologically” $1,000 is a lot to pay for a stock he felt was getting ahead of itself.
That brought him around to saying that other big tech leaders are riding a secular trend that could lose steam, hurting investors along the way.
I sure hope you listened to me and not Cramer. Fact is, history has proved me right and Cramer dead wrong.
Amazon has climbed 96% since the day of his cautionary broadcast.
I’m not pointing out the difference to brag, but to make sure you know that when I make a bold call, I don’t do it lightly. I have 34 years of experience in Silicon Valley tech circles and a proven track record of finding big winners.
And I believe that Amazon is setting itself up for at least another 53% run in the next three years…
My “Conservative” Estimate
Without even looking at Amazon’s growth strategy for both e-commerce and cloud computing, I can easily justify a $3,000 share price based solely on its massive growth rates.
For the past three years, Amazon has grown its earnings per share by roughly 99%. Just to be conservative, let’s cut that figure way back… to 25%.
At that rate, the firm’s per-share earnings would double every 2.8 years. Because stock prices tend to follow earnings growth, this is a stock that actually has the potential to double in less than five years.
That’s why this new “bold call” on Amazon could turn out to be conservative.
But the company’s amazing growth rates aren’t the only vital details here.
There’s something deeper.
And it’s the reason for all the upside in the first place.
Amazon now operates as essentially two different companies – and there will soon be a third.
It’s long been the King of E-Commerce, and in the past few years, it’s become the clear leader in cloud computing services.
Amazon Web Services (AWS) is a profit machine. In the most recent quarter, AWS sales climbed 48.9% to $6.1 billion.
Over the past three years, AWS sales have risen 255%. The cloud services unit now accounts for 55% of Amazon’s operating income, which came in at $1.64 billion, beating forecasts.
Not bad for a “company” that only began in 2006.
And now Amazon is moving into “brick and mortar” retail sales with its purchase of Whole Foods Market Inc. last year.
Of course, Amazon is no slouch when it comes to e-retail. Looking back, it’s hard to believe just how important CEO Jeff Bezos’s decision was to add the 1-Click ordering feature on Sept. 12, 1997.
Other websites forced shoppers to go through a complex, frustrating payment process that limited sales. But with the click of a mouse, Amazon customers could check out in a matter of seconds.
That gave Bezos a huge advantage over hundreds of other e-commerce portals. Over the years, he parlayed that first-mover advantage into a steadily rising number of goods you could purchase online – and a steadily rising number of customers.
Today, you can buy literally millions of goods through Amazon. And Bezos has been savvy in the way he’s kept adding more third-party merchants that can sell through his portal.
Consider the fact that more than 2 million third-party vendors now use Amazon’s storefront. Some 100,000 of those vendors sold $100,000 or more worth of goods in the past year. That’s $10 billion in gross sales for just the top 5% of those third-party sellers.
Indeed, the third-party vendor operation has grown so complex that last year it was the subject of a feature story in The Wall Street Journal. The paper likened the reseller program to that of the stock market, complete with the use of sophisticated computer coding and artificial intelligence algorithms.
But Bezos isn’t resting on his laurels…
He entered the smart speaker market roughly three years ago and is just ripping it there, too.
Alexa (née Echo) started as a simple device that could play music and connect to the web.
Now it’s on the way to becoming a cash machine for Amazon. The AI-featured device allows people to shop at Amazon using voice control. And it’s set up to start linking to physical retail outfits as well.
That’s right, Alexa can help users shop at Whole Food.
Amazon recently announced that Alexa is now linked up for home delivery of groceries. Users can order groceries for delivery in the dozens of cities where Amazon offers its Prime Now food delivery services.
Users can say “Alexa, shop Whole Foods.” If the service is available in their area, customers can create shopping lists and pay by simply saying “Alexa checkout.”
Buyers then receive a two-hour delivery time window. Prime Now members can also choose to pick up their groceries at the supermarket instead.
The company doesn’t report sales figures for Alexa. But Bezos is bullish on the potential he sees here.
In his 2017 letter to shareholders, he said the device “far exceeded” his own “very optimistic” forecasts.
“We don’t see positive surprises of this magnitude very often,” he said. “Expect us to double down.”
That says it all.
Amazon has made a fortune for its shareholders by doubling down on innovative technology. That process has put the stock in a very elite category, and made early investors rich.
If you own Amazon already, and I hope you do, I wouldn’t sell.
And if you are new to the stock, don’t worry about the price tag.
Amazon is one of those success stories that proves the investment thesis I have laid out for you many times over the last several years: The road to wealth is paved by tech.