The Nasdaq Composite (^IXIC -0.25%) has advanced 32% year to date due in part to enthusiasm about artificial intelligence. That momentum bodes well for 2025 because strength in the index has historically led to more strength.
Since the Nasdaq was created in 1971, it has returned at least 20% in 20 years, and at least 30% in 12 years. And the index has consistently followed those years with more strength, as detailed below:
- After a 20%-plus gain in a calendar year: The Nasdaq has returned an average of 17% in the next year.
- After a 30%-pllus gain in a calendar year: The Nasdaq has returned an average of 19% in the next year.
In short, if the Nasdaq returns at least 30% this year, history says the index could surge another 19% next year. Of course, past results are never a guarantee of future performance. But there is no in harm leaning into trends, so long as the goal is long-term capital appreciation.
One Nasdaq stock where Wall Street is particularly bullish is Amazon (AMZN -0.46%), one of only a handful of trillion-dollar companies. Of the 70 analysts following Amazon, 94% rate the stock a buy and the rest rate the stock a hold. Not one analyst recommends selling right now.
Amazon has a strong competitive position in three markets
Amazon runs the largest e-commerce marketplace in North America in terms of sales, and the company is projected to gain share in 2025. Beyond that, Amazon has room to grow given that online sales account for less than 17% of total retail sales in the U.S.. But the company has bigger opportunities in the high-margin industries of digital advertising and cloud computing.
Amazon is the third-largest ad tech company in the world behind Alphabet‘s Google and Meta Platforms, and it’s rapidly gaining share. Ad revenue growth will accelerate for the third consecutive year in 2025, according to eMarketer. One reason for that is the recent addition of ads to Prime Video, but Amazon is also using artificial intelligence (AI) to grow its advertising business. For instance, it has introduced generative AI tools that let brand create images and videos.
Amazon Web Services (AWS) is the largest public cloud in terms of infrastructure and platforms services spending. Indeed, its 31% market share is nearly equivalent to the 33% share held by Microsoft and Google combined. Brent Thill at Jefferies says that dominance gives AWS a “huge advantage in AI” because companies are likely to stick with the provider they know as they adopt AI services.
Importantly, AWS is also investing in AI product development. The company has introduced custom AI chips for training and inference, Bedrock for building generative AI applications, and the natural language assistant Amazon Q. In the last 18 months, AWS has introduced nearly twice as many machine learning and generative AI features as the other leading public clouds combined, according to CEO Andy Jassy.
Image source: Getty Images.
Rapid AI revenue growth and a reasonably priced stock make Amazon compelling
Amazon reported strong financial results in the third quarter, beating Wall Street estimates on the top and bottom lines. Revenue increased 11% to $159 billion on particularly strong sales growth in the advertising and cloud computing business segments. Meanwhile, operating margin expanded more than 3 points as the company continued to make its fulfillment network more efficient, and GAAP net income climbed 52% to $1.43 per diluted share.
CEO Andy Jassy told analysts on the third-quarter earnings call that AWS not only has a multibillion-dollar AI business, but also that AI sales are growing at a triple-digit pace. That momentum could persist in the coming quarters. Cloud spending will increase at 19% annually through 2028, and AI platform services will be the fastest-growing cloud category during that period, according to the International Data Corp.
In short, Amazon has a strong presence across e-commerce, digital advertising, and cloud computing, and the company is using artificial intelligence to gain share across all three business segments. Consequently, Wall Street expects Amazon’s earnings to grow 25% in the next year. That makes the current valuation of 49 times earnings look fairly reasonable.
Amazon currently has a market value approaching $2.5 trillion, but there is plenty of room for the company to be larger. Patient investors should feel comfortable buying a position in this trillion-dollar AI stock today.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Jefferies Financial Group, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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