Amazon stock is the third most valuable in the US market. Apple comes in first ahead of Microsoft. Will Amazon join Apple in the exclusive trillion-dollar club?
Amazon stock has remained stagnant in the past six months. Since reaching its peak in September 2020, its shares have fallen by about 9%, which is well below their top period where it was valued at $1.8 trillion.
Amazon’s lacklustre stock performance is despite the company’s outstanding performance throughout this pandemic period.
Amazon’s fourth quarter 2020 and first quarter 2021 financial results six months ago, saw forecasters predict the company’s equity would have reached well above the $2 trillion milestone by now.
Although shares have remained static over the past six months, the company has recently experienced vast growth in its equity value taking it from $350 billion five years ago to a current figure of $1.6 trillion.
The market conditions from September 2020 to now have been a major factor in the stocks impressive momentum from March 2020 up until September 2020. Amazon’s strong performance during the year of the stay-at-home economy has seen continued market anticipation in the now changing economy.
With the US economy slowly reopening, the market is not looking as positive for Amazon as more consumers are spending less time and money online and are slowly moving back to shopping in store.
The market has shifted towards what is known as the “cyclical rotation” which are growth stocks that can perform in different macroeconomic environments. These are sectors that tend to outperform primarily during periods of economic recovery (banks, energy, travel and leisure).
Some analysts have started to doubt that Big Tech companies will perform as well in the next few years. Consumers are expected to spend less money inside their homes now that the economy is recovering and returning to a pre-pandemic state.
How will US inflation rates affect Amazon’s growth?
With the US economy seeing strong growth, inflation is expected to rise to a high of 2.7% between now and 2026 although higher consumer prices are not expected to affect Amazon’s stock.
Amazon has pitched its position to investors and proposed that from a fundamental perspective, its stock can reach the $2 trillion mark once growth expectations materialize.
Amazon currently trades at a 2021 forward price-earnings ratio of 58 times and without any compression it expects to be worth $2 trillion once the EPS reaches $70.
Experts predict that the company will deliver earnings at these levels as early as 2022. This means that Amazon could reach this milestone within the next 12 months. For this to emerge there would need to be an increase in long-term earnings and/or cash flow growth expectations, a drop in interest rates and increased investor confidence.
Amazon stock could reach the $2 trillion mark if share prices break through its $1.7-$1.8 trillion market cap record. The stock needs to gain momentum to surge and regain optimism from investors.
As Microsoft’s market stake nears the $2 trillion milestone, Amazon is on track to become the next company to follow, potentially reaching the $2 trillion mark by this time next year. And with the rapid increase in its share value may surpass both Apple and Microsoft to take prime position.