Rob Sanderson, an analyst at MKM Partners who covers Amazon (NASDAQ:AMZN), made headlines recently by saying that the ecommerce and cloud behemoth could be worth $2.5 trillion by 2024, but is Amazon stock that valuable?

That is a bold claim. Amazon is worth about $930 billion today. Thus, $2.5 trillion in 2024 would imply nearly 20% gains per year in market value over the next six years.

That would be impressive if Amazon could do that. Is it possible? Can Amazon really get to a $2.5 trillion valuation in six years?

Possibly. But not likely. It is more likely that Amazon stock hits a $2 trillion valuation by 2024. That is still good enough for just under 15% gains per year over the next six years.

Almost assuredly, 15% returns will generate alpha. As such, while I think MKM’s $2.5 trillion number is aggressive, I agree with the principle that Amazon stock remains one of the market’s best growth stories over the next several years.

Amazon Retail Still Has a Lot of Room to Grow

Despite being the elephant in the room that disrupted the entire retail circus, Amazon’s retail business is still relatively small. Combining SEC filings with Deloitte top 250 retailer market share figures, I peg Amazon’s current market share of the global retail market at around 3.5% ($160 billion in global retail sales for Amazon, versus a global top 250 retail market of $4.5 trillion-plus).

That is still very small, and it is up tremendously from 2012, when Amazon’s market share was below 1.5%.

Over the next several years, I think it is quite likely that Amazon continues to gobble up market share as more and more shopping moves online, and I wouldn’t be surprised to see Amazon own 10% of the global retail market by 2025.

Assuming ~4% market growth, that implies roughly $630 billion in retail sales for Amazon. At a 5% operating margin, that would equate to $31.5 billion in operating profits by 2025.

Amazon Web Services Is Still Relatively Small

If Amazon retail is still small, then Amazon Web Services is tiny relative to its growth potential.

Again, using SEC filings and Gartner public cloud market data, I peg Amazon’s market share in the public cloud market at just ~11% (AWS revenues of $17 billion last year, versus a global cloud market of $154 billion).

This market is rapidly growing, and is projected to grow at a near 20% annualized rate into 2021. Thereafter, growth should remain big as IT spend continues to shift towards the cloud, and growth will likely run around 15% per year.

Under those assumptions, and assuming AWS grows market share to 20%, I think Amazon’s cloud business can do about $110 billion in revenues by 2025. At a 35% operating margin, that would equate to $38.5 billion in operating profits by 2025.

Advertising and Amazon Stock

A hugely under-appreciated aspect of Amazon’s business is its digital advertising arm.

Amazon is one of the most visited websites in the world. Yet, its digital advertising business is anemic next to the digital ad businesses supporting the world’s other top-visited sites.

As such, Amazon has tremendous room to scale this business to new heights over the next several years.

The digital advertising market is growing at a rapid rate. According to eMarketer, worldwide digital advertising spend is expected to hit nearly $430 billion by 2022. That seems reasonable to me, and I see the market growing to $500 billion by 2025.

I also think Amazon can swoop in and take 10% of this market by then, implying $50 billion in revenues. At a 35% operating margin, that would equate to $17.5 billion in operating profits by 2025.

A $2 Trillion Valuation Makes Sense

Let’s add it all up to get to a future valuation for Amazon stock.

We have $31.5 billion in profits from the retail business, $38.5 billion in profits from AWS, and $17.5 billion in profits from the ad business. All together, that equals $87.5 billion in operating profits by 2025. Taking out 10% for taxes, we arrive at just under $79 million in net profits in 2025.

A big-growth 25X forward multiple on that implies a 2024 valuation for Amazon of just under $2 trillion. If Amazon gets there, then that would imply nearly 15% gains per year in Amazon stock over the next six years.

Bottom Line on Amazon Stock

A $2.5 trillion valuation for Amazon in six years is slightly aggressive. But, the thesis supporting that claim is structurally correct. Amazon stock remains one of the best growth narratives in the market, and upside, even from here, is compelling in a multi-year window.

As of this writing, Luke Lango was long AMZN.