Amazon CEO Andy Jassy has shared a bold prediction about the company's cloud computing division, Amazon Web Services (AWS). During the third-quarter earnings call, Jassy forecasted that AWS could grow by over 40% in both 2027 and 2028, potentially reaching a $1 trillion business within the next decade. AWS, which reported a 39% growth in Q3 with trailing-12-month sales of $161 billion, is poised to benefit from surging demand for AI-driven services.
The operating margins of AWS stand out significantly compared to Amazon's commerce segment. In Q3, AWS achieved a 39% operating margin with $17.8 billion in operating income, while the North American commerce segment delivered $8.7 billion in operating income on a 7.7% margin. This stark contrast highlights why Amazon is heavily investing in AWS, as it offers a superior operating profile.
If AWS hits a $1 trillion run rate in a decade, maintaining a 39% margin could result in $390 billion in operating income. Over the past 12 months, Amazon produced $106 billion in operating income, suggesting that AWS's growth could more than quadruple Amazon's operating income over the next decade, potentially leading to substantial returns for shareholders.
However, before investing in Amazon, it's important to consider other opportunities. The Motley Fool Stock Advisor team has identified what they believe are the 10 best stocks for investors to buy now, and Amazon wasn't one of them. The team's past recommendations, such as Netflix and Nvidia, have yielded significant returns, with average returns of 852% compared to 203% for the S&P 500.