Stock investments have historically been an essential tool for investors to grow their wealth. When investors buy into good companies that increase in value over time, the value of their stocks will also increase.
Still, it's not easy for new investors to know all the risks and pitfalls of stock investments. Hence, they should stick to a simple and proven strategy: buying and holding good companies with solid prospects.
Here, we will look at one company that can help new investors get started. It's none other than the e-commerce giant Amazon (AMZN 2.19%).
Image source: Getty Images.
Amazon has a solid business model
Amazon is a well-known global brand that needs little introduction. This e-commerce giant has transformed how we shop and has become a household name. But what makes Amazon's business model so attractive? Let's break it down.
First and foremost, Amazon offers arguably the most extensive shopping catalog in the country. It started as an online bookstore but quickly expanded its product offerings to include almost anything you can imagine. From electronics to clothing, kitchen appliances to toys -- you name it, Amazon has it. It has created a one-stop shop where customers can find almost anything they need, all in one convenient place.
But it doesn't stop there. Amazon also offers a wide range of services, such as Amazon Prime, which provides customers with fast and free shipping, access to a vast library of movies and TV shows, and exclusive deals. It also has Amazon Web Services (AWS), a cloud computing platform that has become an industry leader and generates a significant portion of its revenue. These additional revenue streams diversify Amazon's business and contribute to its stability.
Besides, Amazon has competitive advantages that keep it ahead of its peers. For instance, it has built a massive logistical infrastructure, including distribution centers and fulfillment networks, giving the company an edge over its competitors. This scale and efficiency allow Amazon to offer competitive prices and fast shipping, which are crucial for success in the e-commerce industry.
Moreover, Amazon is constantly innovating and finding new ways to improve its operations and delight customers. This kind of innovation has led to products and services like Kindle, Amazon Web Service, cashierless stores, etc. By staying ahead of the technology curve, Amazon ensures that it remains a dominant player in the market and relevant in an ever-changing world.
Amazon's prospects remain bright
Amazon has a remarkable track record that few companies can match, growing revenue from just $511,000 in 1995 to $514 billion in 2022. But despite its gigantic size, the tech giant thinks it is still day one for the company -- and for some good reasons.
As a start, Amazon's retail market share in the U.S. is less than 10% of a $7 trillion retail market, giving it plenty of growth runway to gain market share. To this end, the company has built a loyal customer base (Prime members) thanks to all the years of delighting them with a wide selection of products at low prices and excellent services -- fast delivery, free videos, etc. As long as the company can continue to delight its customers, it stands a good chance to grow existing customer wallet share and attract new consumers.
Beyond e-commerce, Amazon's cloud computing business is well-positioned to grow. According to Market.Us, global cloud computing was $546 billion in 2022 and could grow to $2321 billion by 2032. To put the above figure into perspective, AWS' 2022 revenue was "just" $80 billion, indicating massive growth potential in the coming decade. And with the artificial intelligence (AI) trend picking up steam, AWS is a prime candidate to benefit from the growth in demand for AI services.
In short, the elephant can still dance for many years.
What it means for investors
Amazon is a company that has a solid business model and good prospects for future growth. While investing always carries some risk, Amazon's strong position in the e-commerce industry and ability to adapt to changing consumer behaviors make it attractive for new investors to add to their portfolios.
Investors can consider buying a small position and adding to it over time as their confidence and knowledge grow. Depending your personal situation, $2000 could be a good number to start with now.
