In early August, Apple made history when it became the first U.S. company to be valued at $1 trillion. Now, just over a month later, Amazon has become the second. On September 4, Amazon’s stock peaked at $2,050.50 per share, pushing it to a $1-trillion market capitalization (calculated by multiplying the stock price times the total outstanding shares). The only other company in history to hit that milestone was the Chinese oil and gas distributor PetroChina in 2007.
How did Jeff Bezos do it?
Although there have been some signs of slowing growth in U.S. Amazon Prime members, as well as investor concern over a recent increase in Amazon Prime’s cost (to $119), Amazon’s potential for growth on global Prime subscriptions remains promising. The Prime program—a powerhouse of consumer loyalty that continues to challenge the models of traditional retailers like Walmart—now has more than 100 million members, nearly doubling its membership in two years.
Its cloud computing services for companies have also become a significant profit driver. Amazon’s profitability—a long-time source of wariness from investors—is now on the rise. The company reported a record $2 billion in profit in its last financial quarter.
What does Amazon’s success mean for me?
Good news when it comes to getting good deals. In February, Kevin Kliesen, an economist at the Federal Reserve Bank in St. Louis, specifically cited the “Amazon Effect” in helping to keep inflation low. Namely, that Amazon and other online retailers both sell items for lower prices than traditional retailers and put pressure on those retailers to keep their prices low, too, in order to be competitive.
Amazon began by selling books for a discount in 1994, and has since expanded into dozens of different product sectors and services—from toys to electronics to video streaming services, driving prices down in each. (And consumers have noticed. More than 100 million products were sold on Prime Day in July, more than the total number of products sold last year on Black Friday.)
Amazon’s success is positive news for investors, too. Even if you don’t directly own its shares, you could still be benefiting from this historic milestone. In addition to helping drive performances across the tech sector, Amazon is a large component of a variety of exchange-traded funds (ETFs) and mutual funds—including ones you may already own, like those that track the S&P 500. That’s the beauty of investing in funds: You can get exposure to hundreds of companies at once—including market movers like Amazon and Apple—while still enjoying the protection of broad diversification (meaning that when some of your investments are down, others are up.)
What’s next for Amazon? Only time will tell. But you can count on more companies hitting the $1 trillion mark, as well as more market fluctuations. So while these milestones can be exciting, it’s better to simply think of them as signs of a market that’s angled upward—and keep your focus on your long-term goals rather than on day-to-day market peaks.
September 4, 2018