- CNBC's Jim Cramer says Amazon's growth and investor base helped propel the e-commerce giant to a $1 trillion market cap.
- The milestone puts Amazon second only to Apple, the first U.S. company to hit $1 trillion.
After Amazon's market cap reached $1 trillion on Tuesday, making it the second public U.S. company to hit the milestone valuation after Apple, CNBC's floated a theory for what brought the e-commerce giant to new heights.
"Here's a perfect example of what happens when Wall Street views a company not as an earnings-per-share situation — where Facebook finds itself — but as what's known as a total addressable market, or TAM, play," the "Mad Money" host said.
Calling Facebook's recent stock punishment a symptom of investors questioning its growth prospects, Cramer said Amazon's situation was entirely the opposite.
He asked investors to look at Amazon through the lens of its total addressable market (TAM), a concept used by analysts to estimate what would happen if a given company performed incrementally better in its areas of business.
Cramer argued that those analyzing Amazon based on its TAM see a triple threat: a sprawling e-retailer "just scratching the surface" of global retail demand; a price-conscious cloud provider in an age of cloud adoption; and a digital advertiser with over 100 million people already signed up for its service.
"When you judge Amazon by its total addressable market, that trillion-dollar valuation ... seems too low as long as the company can keep executing," the "Mad Money" host said. "And look, I'm not even talking about Amazon's opportunities in entertainment or distribution."
Amazon's TAM — along with the investors flocking to its stock thanks to its monster growth — helped the company's market cap reach $1 trillion, Cramer said.
Unlike Apple, which some believe has cyclical growth based on its iPhone releases, Wall Street sees Amazon's reach and revenue as giving the company a huge cushion, he added.
"Amazon's a secular growth company that spends a fortune to expand its business; they could turn off that spending tomorrow and show much higher earnings-per-share numbers," Cramer said. "But that would be a poor use of Amazon's capital. We want them to keep chasing revenue growth all over the place."
So as the stocks of Amazon's fellow FANG names — Cramer's acronym for shares of Facebook, Amazon, Netflix and Google, now Alphabet — slid on Tuesday amid big tech testimonies in the Senate and a scathing Facebook downgrade, the "Mad Money" host felt it was worth considering Amazon's continued strength.
"When you own a stock, you need to understand more than just the company. The shareholder base is every bit as important," he reflected. "Facebook's getting crushed as it transforms from a growth stock to a value stock. But the same growth investors still love and thirst after the shares of Amazon, which is how it could cross the trillion-dollar mark today."
Disclosure: Cramer's charitable trust owns shares of Amazon, Apple, Facebook and Alphabet.