
In fact, this company is increasingly encroaching on Nvidia’s turf.
Three stocks have now reached market capitalizations of $3 trillion: Apple, Microsoft, and most recently Nvidia. Earnings growth across the technology sector has been phenomenal in the last decade-plus, leading investors to get increasingly enthusiastic about these stocks. Most recently, innovations in artificial intelligence (AI) have further spurred on these shareholder gains.
Investors have seen stocks continuously surpass trillion-dollar market cap thresholds. But what about $10 trillion? I think there is one stock primed to achieve this milestone before anyone else, and it isn’t one of the three companies mentioned above.
Amazon (AMZN -1.02%) can be the first stock to reach a market cap of $10 trillion and will be the most valuable company in the world once again. Here’s why.
E-commerce profits coming from an unlikely source
For years, investors doubted the profitability of Amazon’s e-commerce operations. With thousands of warehouse workers and delivery drivers, there are a lot of costs associated with running a vertically integrated online marketplace. The core e-commerce business model has razor-thin margins, which will never change. However, the company has layered in highly profitable business lines on top of the e-commerce marketplace.
First, the company has its long-standing Amazon Prime subscription business. Subscription revenue was $43 billion over the last 12 months, up from a measly $2.76 billion in 2014. Amazon has the ability to let these profits fall to the bottom line if it decides to stop reinvesting for growth.
Second, Amazon is now generating $54 billion in annual advertising revenue, mainly from sponsored listings on its e-commerce platform. This is high-margin revenue that can fall directly to the bottom line, just like the subscription business.
Add the two together, and you have close to $100 billion in earnings potential even if you believe the core e-commerce, third-party sellers, and physical retail locations will…
..