Key Points
The AI revolution is on track. Most estimates show that the AI market is expected to increase in value by more than 30% per year over the next decade. But like any other boom, it's hard to know which businesses will ultimately benefit.
This Amazon division is a major AI powerhouse
Amateurs rarely think about it Amazon(NASDAQ: AMZN) As an AI stock. Most people don't see it as an infrastructure stock. However, most of Amazon's operating profit today comes from building and maintaining AI infrastructure. It's all in a department called Amazon Web Services, or within AWS for short. Even if you are familiar with this department, you will be surprised at how dominant it is.
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As of the last quarter, AWS led the global market share of 30% for cloud infrastructure. Almost every AI business relies on cloud infrastructure to train, deploy and run models. Otherwise, these businesses will need to buy, assemble and run their own computing infrastructure. This is a very expensive and slow option. Instead, cloud infrastructure providers like AWS allow AI developers to iterate quickly and rotate their infrastructure every day, even every two seconds, if necessary.
It is difficult to exaggerate how impressive AWS' market share is. The next two biggest competitors – Microsoft and alphabet – combine Only 33% of the market. After them, market share falls off the cliff. 4th place Alibaba It has a market share of just 4%. By controlling almost a third of the global cloud infrastructure market as a whole, AWS holds its position as an AI infrastructure leader. Few competitors can rival the scale or ability to invest in growth.
Image source: Getty Images.
According to a survey by McKinsey & Co, spending on cloud infrastructure is already exploding. “However, with the advent of Generator AI (Gen AI),” the company's research concludes that “demand is set to be even higher.” This growth in spending is driven by the rise of AI. McKinsey & Co estimates that around 70% of the new cloud infrastructure will be built to meet the professional needs of the artificial intelligence and machine learning business.
The latest revenue report from AWS proves that this increase in spending is not just a prediction, but a reality. Division revenues increased 17.5% year-on-year from the previous quarter. Meanwhile, operating profit increased by just 10%. However, the low margins were primarily reflecting large capital expenditures by Amazon. This year, Amazon is planning to spend a record $118 billion expanding its infrastructure to meet the rapidly growing demand for the AI industry.
Do I need to buy Amazon Stock on AWS alone?
Through AWS, Amazon is undoubtedly at the heart of the AI infrastructure boom. However, the company does not consist of only AWS. There is also Amazon's vast e-commerce business. Additionally, while AWS contributes a large portion of Amazon's operating profit, the majority of the company's revenue is still linked to e-commerce. This is a business with a very different economical value. Many analysts even predict that AWS could be spun into another entity. But for now, companies remain under one umbrella and are forced to buy both to sit at the table with investors.
Should I buy Amazon stocks just for AWS exposure? Probably not. Other companies, such as Microsoft and Alphabet, are probably focusing on AI. Microsoft has invested heavily in Open AI, which runs ChatGpt. Meanwhile, the CEO of Google's parent company, Alphabet, recently called AI an invention that is as valuable as fire and electricity. Given their technical focus, the two companies are much more invested in the entire AI boom than the entire Amazon, given their massive e-commerce exposure.
Still, Amazon will remain the AI infrastructure heavyweight for years to come. If investors can also be comfortable owning a vast e-commerce sector, Amazon stocks are a great way to instantly expose themselves to one of the best AI infrastructure businesses on the market today.
Should I invest $1,000 in Amazon now?
Consider this before purchasing stock on Amazon.
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