Since last year’s stock-market retreat, Amazon (NASDAQ:AMZN) stock has made a nice comeback. But that should not be a surprise.

Despite the company’s massive sales, its growth rate remains solid and should remain so for some time.

But could the rally of Amazon stock pause? Perhaps investors have been overly optimistic about AMZN stock?

I don’t think so. Keep in mind that AMZN stock price is still about 23% off its high (which was reached when the market cap of Amazon stock exceeded $1 trillion). Besides, Amazon stock has multiple drivers that make the company fairly unique.

So let’s take a deeper look at these drivers.

Amazon Stock: An E-Commerce Powerhouse

Even though Amazon has strong online competitors, such as eBay (NASDAQ:EBAY) and traditional retailers like Walmart (NYSE:WMT), AMZN still remains the dominant player in e-commerce. According to eMarketer, AMZN is expected to take a whopping 49.1% share of the U.S. e-commerce market.

And e-commerce is likely to continue to grow at a strong pace for many years to come, as consumers keep shifting towards digital platforms. Note that AMZN only has about 5% of the overall U.S. retail market.

Amazon’s competitors certainly have to overcome some major barriers to entry. Just some of those barriers are Amazon’s top-of-mind brand, its extensive infrastructure of fulfillment centers, its enormous amounts of customer data and of course, the Prime ecosystem.

As InvestorPlace.com’s Luke Lango put it in a recent post: “Prime growth is at the heart of Amazon’s e-retail growth. As the Prime base grows, Amazon’s dominance across e-retail will grow by two-fold due to wider reach and higher per capita wallet share.”

Amazon Stock: Cloud Growth

A critical factor behind the success of Amazon stock has been Jeff Bezo’s ability to move into massive markets. Perhaps the most notable example is AWS (Amazon Web Services), the company’s cloud business. Companies like Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and IBM (NYSE:IBM) should have been early leaders in the cloud. But it was Bezos who had the vision — and the guts — to launch a cloud business before them.

In the third quarter, the AWS segment posted revenue of $6.68 billion, up 46% on a year-over-year basis, while its operating income came in at $2.1 billion.

The cloud market is getting more competitive. But AMZN continues to add new features, innovating in a variety of areas, including AI (Artificial Intelligence), database technologies, virtual private servers and many other new technologies.

Besides, the cloud opportunity is enormous. According to research firm Gartner, it will go from $175.8 billion in 2018 to $278.3 billion by 2021.

Amazon Stock: Ad Business

The big knock against Amazon stock is the low margins of its e-commerce segment. Despite the company’s cutting-edge technologies, robots and sophisticated logistics, its e-commerce margins haven’t risen much.

But the good news is that AMZN has been able to increasingly focus on new markets that have much higher profit margins. For example, AWS has been a key component of Amazon’s successful drive to profitability.

Another one of Amazon’s newer, more profitable businesses is advertising. Even though Amazon’s ad business is relatively small — at least compared to the ad businesses of Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOGL) — Amazon’s unit still has the potential to become a breakout business. Consider that eMarketer estimates that AMZN likely attained the No. 3 spot in online ads in the U.S. in 2018.

AMZN is leveraging the big-time advantage of its purchase data. By using that data, marketers can obtain higher ROIs from their ads.

There are various other areas on which AMZN can capitalize in the future, such as Twitch (the largest video-gaming service), its video-streaming service and its Alexa-powered speakers.

— Tom Taulli

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Source: Investor Place