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Over the last 10 years, the FTSE 100 index has returned about 6.2% annually (including dividends). That’s not a bad return, but history shows that it’s possible to achieve much higher returns than this with individual stocks.
Here, I’m going to highlight a blue-chip S&P 500 stock that I feel has the potential to outperform the Footsie by a wide margin over the next five years. This is one of my largest individual stock holdings at present and I believe it’s worth considering as a long-term investment today.
A world-class company
The stock I’m referring to is Amazon (NASDAQ: AMZN). It’s a global leader in e-commerce, cloud computing, digital advertising, and artificial intelligence (AI).
Shares in the company currently cost about $236. Don’t be put off by the high share price though – it could climb much higher.
Multiple growth drivers
There are several reasons I believe Amazon shares will beat the FTSE 100 over the next five years. One is that the company is likely to generate substantial revenue growth over this timeframe.
Looking ahead, Amazon’s e-commerce division should continue to see solid growth as ever more consumers realise how convenient online shopping can be. I expect this division to grow by around 7%-10% per year.
Cloud computing (AWS) and AI solutions should deliver significantly higher growth. I expect to see a lot of growth here over the next five years as the world becomes even more digital and these industries expand.
Digital advertising should also be a key growth driver. Today, Amazon is the third-largest digital ad business globally behind Google and Meta.
Looking to the second half of the five-year period, we could even see some growth from some of Amazon’s more speculative business segments. These include Project Kuiper (space satellite broadband) and Zoox (self-driving cars).
As Amazon’s revenue rises, earnings should rise too. And this should lead to share price growth.
Historically low valuation
Another reason I’m bullish is that the valuation is near historically low levels. Currently, the forward-looking price-to-earnings (P/E) ratio is only around 30.
Starting from that earnings multiple, I think the stock can potentially deliver great returns over the next five years. That said, if I wait for a pullback and snap it up on a lower multiple, I could see even higher returns.
Amazing track record
One other thing pointing out is that historically, Amazon has outperformed the FTSE 100 by a wide margin. Over the last 10 years, the stock has returned about 30% annually – well above the Footsie’s 6.2%.
I’m bullish
Of course, my prediction could turn out to be wrong. There are plenty of risks that could derail my thesis.
Recently, there’s been concern in the market that Microsoft is outperforming Amazon in the cloud/AI space. This is an issue to keep an eye on.
Lower-than-expected earnings are another factor that could hurt the stock. We could see this as a result of tariffs or spending on AI infrastructure.
UK investors also need to think about exchange rates. If the pound was to strengthen significantly against the US dollar, this stock could underperform in GBP terms.
But I expect this stock to do well in the long run. I’d be very surprised if it doesn’t beat the Footsie over the next five years.
