Valuation Drift: Amazon & Alphabet’s Trillion-Dollar Trajectory

by

Let’s consider, for a moment, the utterly baffling phenomenon of market capitalization. It’s essentially a collective agreement to pretend something is worth a certain amount, a sort of globally-sanctioned delusion. Currently, Nvidia, a company that makes things that make other things go faster (mostly computers, but potentially spaceships, which is always exciting), is valued at $4.5 trillion. Palantir Technologies, a name that sounds suspiciously like a villain from a particularly obscure Bond film, adds another $400 billion. That’s a combined $4.9 trillion. A perfectly respectable sum, of course, if you happen to be a small galaxy. But I suspect Amazon (AMZN 0.31%) and Alphabet (GOOGL +1.60%) (GOOG +1.57%) are quietly plotting to exceed that figure by 2028. It’s not about greed, you understand. It’s about… well, it’s about numbers getting bigger. Which, as any mathematician will tell you, they invariably do. (Unless you’re dealing with imaginary numbers, in which case, good luck explaining that to your accountant.)

Amazon, presently valued at $2.6 trillion, needs to add roughly 92% to its market cap to hit the $5 trillion mark. This translates to annual returns of around 24% over the next three years. Alphabet, at $3.9 trillion, requires a comparatively modest 28% increase, implying annual returns of 9%. These figures, viewed in isolation, appear… optimistic. But then again, so is the entire concept of assigning monetary value to abstract concepts like “brand recognition” or “future potential.” (It’s a bit like trying to measure the weight of a dream. Possible, theoretically, but deeply unsettling.)

1. Amazon: The Everything Store, Expanding Exponentially

Amazon, you see, isn’t just a store. It’s a logistical marvel, a cloud computing behemoth, and increasingly, a purveyor of artificial intelligence. They’re deploying AI across all three core businesses – retail, advertising, and cloud – not merely to increase revenue (though that’s a pleasant side effect), but to improve profitability. Their non-GAAP operating margin has increased nearly 2 percentage points recently, largely due to efficiency gains driven by generative AI. (Think of it as teaching the warehouse robots to be slightly less grumpy.)

Amazon Web Services (AWS) dominates the cloud market with 41% share, according to Gartner. Cloud revenue growth accelerated to 20% in the last quarter, fueled by demand for AI. As CEO Andy Jassy pointed out, AWS is where most companies’ data resides, making it the natural platform for AI workloads. (It’s a bit like a digital Switzerland: neutral, secure, and suspiciously well-organized.)

Looking ahead, retail e-commerce is projected to grow at 10% annually through 2030 (Straits Research), ad tech at 14% (Grand View Research), and cloud services at 22% (Goldman Sachs). That’s a lot of growth potential, even for a company already the size of a small country. (One wonders if Jeff Bezos is secretly planning to annex Luxembourg.)

To reach $5 trillion by 2028, Amazon needs earnings to grow at 19% annually. The current valuation of 34 times earnings seems reasonable, assuming they continue to beat consensus estimates (which they’ve done by an average of 23% in the last six quarters). If that continues, $5 trillion is achievable while the P/E ratio drops to 33. (Of course, there’s always the possibility of a rogue asteroid. But we try not to factor those into our projections.) Beyond the core businesses, Amazon’s autonomous driving subsidiary, Zoox, is launching ride-sharing services in Las Vegas and expanding to other cities. If Zoox gains traction, the market may afford Amazon a higher P/E multiple. (Although, frankly, the idea of self-driving cars still feels like a science fiction trope waiting to happen.)

Loading widget...

2. Alphabet: The Data Empire Strikes Back

constantly evolving, endlessly complex, and occasionally infuriating.)

Alphabet is also introducing AI-powered advertising tools, allowing for personalized ads in AI Mode. The Financial Times notes this will enable brands to offer highly personalized advertising through the chatbot, such as a discount code. (One shudders to think what the AI will recommend next.)

Google is the third-largest public cloud provider, gaining a percentage point of market share last year. This momentum is likely to continue, fueled by its AI expertise. Forrester Research recently ranked Google as a leader in AI infrastructure, thanks to its custom AI chips and Gemini models. (It’s a bit like building a digital fortress: constantly reinforcing the walls, upgrading the defenses, and hoping the barbarians stay away.)

To reach $5 trillion by 2028, Alphabet needs earnings to grow at 15% annually. The current valuation of 32 times earnings is somewhat expensive, but Alphabet has consistently beaten consensus estimates by an average of 14% in the last six quarters. If that continues, $5 trillion is achievable while the P/E ratio drops to 24. Alternatively, Alphabet’s market value could reach $6.7 trillion (implying 70% upside) if it maintains its current P/E ratio. This is plausible, given that its autonomous driving subsidiary, Waymo, leads the market with commercial ride-sharing services in five U.S. cities. (Although, one suspects the real challenge isn’t the technology, but convincing people to trust a robot with their lives.)

Read More

2026-01-27 11:12