Amid recent stock market volatility, the market cap crown has changed hands a few times. Long time market cap king Apple (NASDAQ:AAPL) ceded the crown to long time runner up Microsoft (NASDAQ:MSFT) after announcing weak third quarter numbers. Then, Microsoft stock started to drop. Meanwhile, the third horse in this race, Amazon (NASDAQ:AMZN), started to regain lost ground. Amazon stock became number one before too long.
Those trends persisted in early 2019. Now, AMZN has officially taken the market cap crown. That marks the second market cap crown exchange in roughly just as many months.
The buck stops here. There will be no more market cap exchanges in the foreseeable future. Amazon stock is the ideal combination of big, innovative, disruptive, and rapidly growing which warrant it wearing the market cap crown.
Microsoft is just big and innovative. There isn’t enough disruption or growth there. Apple is just big. Innovation, disruption, and growth are all lacking. Alphabet (NASDAQ:GOOG) is big and innovative. But, growth and disruption lag Amazon.
There also isn’t any other contestant. The next largest company after the aforementioned Big Four is Berkshire Hathaway (NYSE:BRK.A) at under $500 billion.
In other words, Amazon stock has taken the market cap crown, and it’s not giving it up any time soon.
Why Amazon Deserves the Market Cap Crown
If you were to talk about the largest publicly traded companies with individuals who don’t follow the stock market, the Big Four of Amazon, Apple, Microsoft, and Google would make sense to pretty much everyone. These are all companies that touch consumers and enterprises on a daily basis and which have widely recognized and valuable brands.
But, Amazon stands out from the pack in terms of innovation, growth, and expansion.
When you think of Apple, you think of the iPhone and other legacy hardware products. Sure, there’s something to be said for the Apple Watch. But, it’s no iPhone 2.0.
For Microsoft, you think about all the cloud offerings, and while those are growing nicely, the company really isn’t expanding dramatically beyond its core cloud business.
For Google, you have a company that represents the backbone of the internet and has a rapidly growing cloud business. But, until the self driving business gets off the ground, this company, too, isn’t the gold standard for growth or expansion.
Now, let’s talk Amazon. We all know Amazon for its huge and still rapidly growing e-commerce business. We also all know Amazon for its market-leading cloud business. But, that’s just the tip of the iceberg for this company.
Amazon is rapidly developing an offline retail business, which projects to go from essentially zero stores two years ago, to 500 Whole Foods locations and 3,000 Amazon Go convenience store locations by 2021.
The company is also rapidly building out a digital advertising business, that has gone from hardly being on the scene a few years ago, to a $10 billion annualized revenue business today.
There is also the nascent but promising logistics and pharmaceutical businesses, both of which represent multi-billion dollar opportunities.
Overall, Amazon’s innovation, growth, and expansion are simply unparalleled. That isn’t a knock against Apple, Microsoft, or Google. Those are all great tech companies with stocks that are long term winners. But, it’s simply to say that no one matches Amazon when it comes to combining size with growth drivers.
Because of that, Amazon stock rightly deserves the market cap crown.
The Case for $2 Trillion
Given the company’s multi-faceted and long-running growth drivers, there is a case for Amazon stock to not only regain its $1 trillion valuation, but eventually hit a $2 trillion valuation in the long term.
The math is pretty simple. You can see it here. But, the brief synopsis for where Amazon’s businesses could be by 2025 are as follows:
- Ecommerce: $600 billion-plus revenues, 5% operating margin, $30 billion-plus operating profits
- Cloud: $110 billion revenues, 35% operating margin, ~$40 operating profits
- Advertising: $50 billion revenues, 35% operating margin, ~$20 billion operating profits
Adding it all up, Amazon’s potential operating profit opportunity by 2025 sums to nearly $90 billion. Taking out 10% for taxes, that’s about $80 billion in net profits. A big-growth 25X multiple on that to account for growth potential in pharma and logistics implies a 2025 valuation of $2 trillion for Amazon stock.
Bottom Line on Amazon Stock
It’s fair to say that Apple is in the later innings of its growth narrative. Microsoft and Google are both in the middle innings. Amazon is still in the early innings.
As such, now that AMZN has taken the market cap crown, it won’t give it up anytime soon.
As of this writing, Luke Lango was long AAPL, AMZN, and GOOG.
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