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 Jim Cramer 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.
"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."