On Oct. 29, Amazon (NASDAQ:AMZN) reported that its cloud business, Amazon Web Services (AWS), grew 39% in the third quarter, its fastest pace in nearly five years. The same report missed expectations for overall revenue and earnings, and the company's fourth-quarter outlook came in light. The stock fell after hours and looked set to open roughly 7% lower on Oct. 30.
Team Rule Breakers recommended Amazon in Stock Advisor on Nov. 17, 2022, at $94.85. Even after the post-report slide, the stock has more than doubled since then and remains comfortably ahead of the S&P 500.
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The fifth of six Rule Breakers Principles is: You get to invest for the whole race!
At a horse track, bettors have to commit their money before the gate opens. However, stock investors can keep watching as the race unfolds and use each new stretch of information to back the horses pulling ahead and retire the ones fading. The Rule Breaker approach pairs that freedom with patience. Selling a great company too early has often cost investors far more than holding on to a few losers.
A Furlong That Looked Worse Than It Was
Amazon's overall sales grew 12% to $201.9 billion. That figure absorbed a calendar shift, since Prime Day landed in the second quarter this year instead of the third, and the company said growth would have been about 4 percentage points higher without it. Operating income rose 61% to $28.1 billion, lifting the operating margin to 13.9% from 9.7% a year earlier.
What the Race Has Revealed Since 2022
When the team recommended Amazon in late 2022, AWS growth was slowing sharply as customers trimmed their cloud bills, and it bottomed out around 12% in 2023. Anyone who sold during that slowdown missed the reacceleration that followed. AWS now runs at about $184 billion in annual revenue, and CEO Andy Jassy projects growth above 40% in both 2027 and 2028. He also said AWS and Amazon's stores business could each reach $1 trillion in annual revenue within five to 10 years, a level he noted no business has ever hit.
The Stores Business Is Running Slower
The stores business, which funds much of Amazon's experimenting, is growing far more slowly. North American sales rose 6%, and online store sales fell short of expectations. Management also said Amazon is adding a lot of AWS capacity over roughly the next eight to 10 quarters, a spending commitment that typically pays off only if demand keeps pace. Jassy also expects six to eight artificial intelligence (AI) models to perform about equally well within a few years, which could pressure prices across the industry.
Thoroughbred or Also-Ran?
Holding Amazon through this stretch means believing AWS's reacceleration has years to run and that the stores business can keep widening its margins while sales grow slowly. A slower stores business might give doubters reason to retire this horse. Investors who still see AWS pulling ahead may consider adding shares today for less than they cost before the report.
For a sense of how long this race can run, David Gardner, The Motley Fool's co-founder and Chief Rule Breaker, first recommended Amazon in Stock Advisor in 2002 at a split-adjusted $0.77. That pick has beaten the S&P 500 by more than 28,000 percentage points, and the stock has collected dozens of buy recommendations across Motley Fool services since then, including from both Team Rule Breakers and Team Hidden Gems, with no sells.
The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.