Prediction: Amazon stock will rise over the next 5 years. Here is 1 reason why.

Amazon (AMZN 3.71%) it has been one of the biggest gainers since the turn of this millennium and has provided excellent returns for long-term investors. On the other hand, the e-commerce and cloud computing giant actually lagged behind the broader market in 2024.

While Amazon shares are up about 17.5% in trading this year, S&P 500 the index delivered a dividend-adjusted total return of 19.5% as of this writing.

Even though Amazon has outperformed the benchmark this year, investors shouldn’t bet that this will continue to be the case over the long term. In fact, the stage appears set for stocks to deliver market-shattering returns over the next five years — and artificial intelligence (AI) could be at the heart of an incredible transformation.

Amazon can still deliver huge earnings growth

Take a look at the chart below, which tracks Amazon’s quarterly operating margin over the past five years.

AMZN Operating Margin Data (Quarterly) by YCharts.

As the chart shows, the tech giant’s operating margin has seen some big changes — but it’s trending encouragingly. Some key macroeconomic pressures have started to ease in 2023, and performance through two quarters in 2024 looks like the company is on track to record its highest annual operating margin. There is good reason to believe that performance will continue to improve.

Driven by its Amazon Web Services (AWS) cloud services business and its rapidly expanding — and highly profitable — digital advertising business, overall margins expanded from 2023.

While the e-commerce business still accounts for the majority of total sales, AWS and the digital advertising business should continue to represent an increasing portion of sales, contributing to higher margins and overall profits. Even better, there’s a good chance its massive online retail business will become significantly more profitable thanks to the rise of artificial intelligence and robotics.

Despite generating huge amounts of revenue, e-commerce is still a relatively low-margin business for Amazon. If automation significantly reduces costs for this segment, the company’s earnings and stock price should rise.