Amazon’s CEO Andy Jassy Just Announced Huge News for Amazon Investors

Andy Jassy is the CEO of Amazon (AMZN +0.48%), succeeding founder Jeff Bezos a few years ago. Jassy used to lead Amazon Web Services (AWS), and his appointment as CEO a few years ago clearly indicated that this was the direction Amazon’s business was heading. Bezos was correct in this assessment, as AWS has become a huge part of Amazon’s business.

However, it’s about to get even bigger. Andy Jassy made a bold prediction during Amazon’s third-quarter earnings call that investors need to digest, as it could have big implications for the stock.

CEO Andy Jassy Amazon: Image source: Amazon.com Inc.

AWS is headed to the $1 trillion mark

During Amazon’s Q3 earnings call, Jassy noted that AWS could grow by more than 40% in both 2027 and 2028, driven by significant investments in the platform. Over the next five to 10 years, that could grow to become a $1 trillion business. For reference, AWS, Amazon’s cloud computing unit, grew at 39% in Q3, and its trailing-12-month sales totaled $161 billion.

That’s huge news for investors, but what does it mean for the stock?

The biggest thing investors must realize is just how much better of a business AWS is than commerce. Commerce businesses in general operate on razor-thin margins, and while Amazon is one of the best at maximizing its margins, it’s still much lower than what AWS puts up. During Q3, AWS’ operating margin reached 39% on operating income of $17.8 billion. Its North American commerce segment delivered $8.7 billion in operating income on a 7.7% margin.

That’s a huge mismatch, and it shows why Amazon is investing in AWS so heavily: It has a superior operating profile. As Amazon leans more heavily into AWS, it will be great news for the stock. Let’s assume AWS hits a $1 trillion run rate a decade from now. If Amazon can maintain a 39% margin, that’s $390 billion in operating income. Over the past 12 months, Amazon has produced $106 billion in operating income.

AMZN Operating Income (TTM) data by YCharts.

That means its operating income could more than quadruple over the next decade, which would result in huge returns for shareholders. AWS headed to $1 trillion in annual revenue would be huge news for investors, and if Jassy is right, could indicate that Amazon is a top stock to buy in the market now.

Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.