What happens if you invest $1000? Amazon (AMZN 0.65%) When did you start taking cloud computing seriously? Let's take a quick trip down memory lane to see what that investment looks like today. Spoiler alert: Holding Amazon stock for the long term tends to pay off.
A brief history of launching AWS
The largest cloud computing platforms have been around for a long time. Amazon launched the first version of Amazon Web Services (AWS) in 2002, starting as a completely free developer framework for linking third-party websites to the content of the main Amazon e-commerce store. Did.
AWS money-making features are often heralded by free beta versions and added one after the other. As the free service gained traction and widespread use, the company inched closer to turning AWS into a real business. I allege that the cloud computing services were in operation as a business by August 25, 2006, after the launch of the S3 cloud storage service and the actual Elastic Compute Cloud (EC2) cloud computing platform.
S3 and EC2 were more than just technology experiments. These were the first major steps in Amazon's effort to redefine and dominate the cloud computing environment.
And that was a long time ago. At the time, Amazon wasn't the multi-sector giant we see today. His final revenue was $9.3 billion, supporting a mid-range market cap of $11.7 billion. On that sunny, twilight August afternoon, the split-adjusted price of an Amazon share hovered at just $1.40.
Profits sweep the Amazon market
So let's assume you invested $1,000 in Amazon in August 2006, and see how much it would be worth today.Let's compare it with S&P500 (^GSPC 0.26%) Market index for size with and without reinvesting dividends over many years:
AMZN Data by YCharts
A modest $1,000 investment in the early days of Amazon's cloud computing business would be worth $11,440 today, 20 years later. Over the same period, the broader market delivered substantial gains, increasing by 275% without dividend reinvestment and 430% in total returns. But it's hard to keep up with the biggest business growth story in history.
Timing the market? No, the real secret to successful investing is time in the market.
Why focus on this particular period?
It wasn't on a whim that I chose the launch of AWS as a nod to this thought experiment. If I really want to impress you with big numbers, he went from $1,000 in Amazon stock on the day of its initial public offering in 1997 to $1.6 million today. I would like to point out that. Getting in early to tomorrow's biggest winners can yield truly epic returns.
Currently, Amazon has $554 billion in sales and $1.6 billion in sales. Trillion Market capitalization. The old stock, which you could buy in 2006 for $1.40 per split-adjusted stub, is now worth $155. Of course, since those days were long ago, the brokerage firm may have charged him additional fees for buying and selling “round lots” of less than 100 shares.
Therefore, a realistic minimum order amount for a round lot of Amazon stock would be $2,800, taking into account the 20-for-1 stock split in 2022. That would be $308,000 at today's stock price. Sometimes onerous market rules can be helpful.
But that's not exactly the point of my graph. Without the AWS business, I think Amazon would be a much smaller and weaker business today, as the AWS business has evolved into the company's most profitable profit center. Amazon's long-term investor has reaped innovative benefits from his cloud computing experiments, including the bulk of which earned him a 10,940% return over 18 years.
Why is AWS important?
AWS started with nothing in 2006, but quickly built a reputation as a reliable, low-cost computing service. By 2010, the platform had won the trust and business of many large customers. for example, Netflix (NFLX 11.93%) moved its entire digital infrastructure to AWS in 2010, preparing to launch its video streaming service as a standalone business on AWS and its content delivery network.
Currently, the cloud computing market is evolving significantly. Netflix has replaced its AWS content distribution service with its own Open Connect network, but the rest of its business still runs on thousands of his AWS EC2 instances. This is just one example of Amazon's large and growing number of major AWS clients who rely on major cloud platforms to do their digital “heavy lifting.”
And it's now big business. AWS accounted for $2331 billion of Amazon's third-quarter revenue (one quarter, not the full year), or 16% of total revenue flow. But AWS's services are far more profitable than its low-margin e-commerce business, so much so that his AWS operating profit for the same period amounted to $7 billion, accounting for 64% of Amazon's total operating profit. Ta.
The story doesn't end there. AWS is also a leading provider of cloud-hosted artificial intelligence (AI) services. This connection should fuel AWS's growth for years to come.
“We've been surprised by the pace of growth in generative AI. Our generative AI business is growing very quickly,” CFO Brian Olsabsky said on a third-quarter earnings call last October. Ta. “By most accounts, this is already a pretty significant business for us. Still, the company is still in a relatively early stage.”
That's why AWS raised Amazon's market cap to $1 trillion. Not everything in itself, but as a powerful and profitable rocket booster. And the momentum continues. Prospective investors may look back on 2023 and 2024 as the beginning of a new era of innovative growth that's worth looking in the rearview mirror.
Until then, we may start looking for the “next Amazon,” but the real deal is still the behemoths that move the markets, and we can thank AWS for most of our recent profits. Most investors didn't see the digital future coming in 2006.
