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Amazon could be a $3 trillion company, says top VC

Chamath Palihapitiya, Founder and CEO of Social Capital LP, speaks at the Sohn Investment Conference in New York City, U.S. May 4, 2016. REUTERS/Brendan McDermid

High-profile venture capitalist Chamath Palihapitiya, the CEO and founder of Social Capital LP, said there’s one US company that has the potential to reach $3 trillion.

That business is Amazon (AMZN), according to Palihapitiya.

“This is a story that’s just beginning. In fact, we believe and our models indicate that this is a $3 trillion company in the next ten years,” he said at the Sohn Investment Conference in New York on Wednesday.

Palihapitiya explained that there are three critical components to how Amazon builds this kind of value — the value of the retail business, the “unbelievable opportunity” that Amazon Web Services represents, and a “new insight” into how Jeff Bezos manages the business.

First, Palihapitiya believes the company’s retail business has the potential to grow to $1 trillion over the next decade. He pointed to the growth of Amazon Prime, which he said has been “phenomenal” to date, but it’s “just beginning.”

Next, Amazon Web Services, the cloud computing platform offered by Amazon. Palihapitiya noted that AWS is not as well understood as everyone thinks and that’s the “blue chip of technical infrastructure,” he said.

He believes AWS will be a $1.5 trillion business that’s going to disrupt the IT industry.

“In order to understand the value of AWS, we think that Jeff [Bezos] is going to completely disrupt this market. There are going to be unbelievable numbers of losers as AWS gets to scale.”

He continued: “More capability. More power. Lower costs. What [Bezos] did to retail, he will do to IT.”

As for that “new insight” about Bezos, investors should not look at the operating earnings (EBIT) and think that it’s unprofitable.

“We think that what [Bezos] does is harvest this cash and invest it in the business. And when you add that up, that’s $18 billion that he’s made on our behalf.”

He’s taken that $18 billion and generated more than $200 billion in value, Palihapitiya estimated.

“That’s incredible,” he said.

He pointed that Bezos will likely do that over the next ten years. What will be different though, is they will have two monopolistic customers— retail and AWS.

“We think this is the most incredible company in the world being built today.”

He concluded: “If you believe in the internet, you have to believe in Amazon. If you believe in buying things, you have to believe in Amazon. If you believe in consumer consumption you have to own Amazon.”

Julia La Roche is a finance reporter at Yahoo Finance.

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