Amazon is already benefiting from AI investments.
when thinking Amazon (AMZN +1.77%)the first thing that might come to mind is shopping. After all, the company is an e-commerce giant that many of us rely on on a daily basis for access to groceries, essentials, and even books and movies. And this business has helped Amazon become a market powerhouse, bringing in billions of dollars in revenue each year.
But another business is driving the company’s profits: its cloud division, Amazon Web Services (AWS). The company is the world’s largest cloud service provider and accounts for about 65% of Amazon’s total operating profit. Here’s some great news for Amazon shareholders and potential shareholders. The company is turning its cloud business into an artificial intelligence (AI) growth engine. Let’s check the details.
Image source: Getty Images.
Why investors are excited about AI
So first, let’s talk a little bit about AI in general and why it’s such an exciting investment topic for investors. AI gives companies the potential to increase efficiency and make new discoveries easier. And all of this can help drive your earnings to even higher levels over time. We are currently in the building phase of AI infrastructure, with cloud companies expanding their data centers to provide more computing to their customers. experts etc. Nvidia Secretary Jensen Huang has suggested this spending could reach trillions of dollars by the end of this decade.
Of course, AI is already being applied to real-world problems and situations, and Amazon is a perfect example. E-commerce businesses use AI to streamline fulfillment center operations and assist customers on their websites. But companies that develop and sell AI tools are likely to benefit the most at this stage of the story, and Amazon is one of these players thanks to AWS.
Today’s changes
(1.77%) $4.06
current price
$233.22
Key data points
Market capitalization
$249.3 billion
daily range
$230.22 -$233.28
52 week range
$161.38 -$258.60
volume
20M
average volume
48M
gross profit
50.05%
dividend yield
Not applicable
With annual revenue of $132 billion, AWS has already demonstrated that it is becoming the company’s AI growth engine. And in the most recent quarter, AWS revenue increased 20% year-over-year, the highest growth rate in 11 quarters.
Now, this momentum is expected to continue in the future for the following reasons. As the world’s leading cloud player, AWS is an easy choice for customers because both parties already have established relationships. And AWS, the market giant, offers a wide range of products and services for any AI project. Customers can access high-level AI chips from Nvidia or low-cost chips designed by AWS, leverage Amazon Bedrock, a fully managed AI platform, or rely on AWS for their AI agent building and deployment needs. These are just a few examples.
AI made easy
AWS aims to make it easy and efficient for customers to develop and put AI to practical use, and so far, the company’s efforts are paying off. You can see that in the recent earnings report above, as well as CEO Andy Jassy’s comments about this phase of AI infrastructure expansion.
“We will continue to invest very aggressively in our capacity because we know there is demand,” Jassy said on the latest earnings call. “Now, as quickly as we add capacity, we are monetizing it.”
What does all this mean for you as an investor? With so many AI stocks out there, it’s hard to predict which ones will be future winners. But some companies, such as Amazon, are already starting to generate returns from their AI investments. As Amazon’s latest earnings report shows, AI is driving a new wave of growth in cloud businesses. AWS’s range of products and services, as well as its leadership in the cloud market, suggests that this momentum is likely to continue.
Amazon is turning its cloud business into an AI growth engine. Considering this and Amazon’s overall picture, the stock currently looks very reasonable at 32 times forward earnings. That’s why Amazon is the best tech stock to buy and hold as this AI revolution accelerates.
