Amazon's stock could hit $3,000, or nearly $1.5 trillion market cap, in two years, Jefferies says

Key Points
  • "In our view, many of its embedded growth opportunities are underappreciated," says Jefferies analyst Brent Thill.
  • The growth potential of Amazon Web Services, Prime and advertising could help lift Amazon's stock by 55 percent to $3,000 a share over the next two years, says Thill.
Jeff Bezos, founder and chief executive officer of Inc., speaks during a discussion at the Air Force Association's Air, Space and Cyber Conference in National Harbor, Maryland, U.S., on Wednesday, Sept. 19, 2018.
Andrew Harrer | Bloomberg | Getty Images

Amazon shares could surge to $3,000, or $1.46 trillion in market value, by 2020, driven largely in part by strong growth in the company's Prime, cloud and advertising businesses, an analyst at Jefferies suggested Tuesday.

Analyst Brent Thill said in a note that Amazon's core retail business is seeing momentum accelerate driven by its Prime service and "best-in-class fulfillment capabilities," while Amazon Web Services has become the "de facto standard for public cloud." Advertising, meanwhile, continues to drive higher margins and expand the company's already massive total addressable market.

"In our view, many of its embedded growth opportunities are underappreciated," Thill said. "AWS, advertising, and subscription are all growing ~2 times faster than the core and are more profitable. We estimate conservatively these businesses will be on a combined $115B+ run rate by 2021, just over a quarter of total revenue, but close to half of Amazon's value."

These 21 major retailers are worth less than Amazon...combined
These 21 major retailers are worth less than Amazon...combined

Road to $1.5 trillion

The growth potential of these businesses — coupled with the potential upside of penetrating industries like health care — could lift Amazon's stock by 55 percent over the next two years, predicts Thill, who has a buy rating on the stock. At that $3,000 price, Amazon shares would be worth nearly $1.5 trillion. The stock notably rose above the $1 trillion market value milestone earlier this month, becoming only the second company to do so along with Apple. Shortly after the open Tuesday, Amazon was trading slightly higher at about $1,947 a share and a market value of $954.45 billion.

Thill also hiked his 12-month price target to $2,350 from $2,185, implying 21.5 percent upside from Monday's close of $1,934.36.

Amazon's shares have more than doubled in the past year, raising overvaluation concerns. But Thill says Amazon is still undervalued despite its monster gains this year.

"We believe the stock remains undervalued given all embedded growth opportunities and the optionality from new initiatives," he said. "We think Amazon trades at a material discount to peers on growth-adjusted basis and expect multiples to expand over time."