Artificial intelligence (AI) stocks have become a hot topic for investors in recent years. Because this technology has the potential to transform the way businesses operate and, as a result, significantly increase revenue growth. Winners in this space are also beginning to emerge, from developers of AI products and services to users of the technology. All of this has contributed to a surge in many AI stocks, driving major indexes higher in the process.
Amazon (AMZN 1.66%) Thanks to its cloud arm, Amazon Web Services (AWS), the company happened to be one of the early winners, with its stock price rising more than 100% in three years.
But in recent weeks, investors have been hesitant to buy AI stocks as major concerns have emerged that the potential earnings opportunity may be lower than expected. The disappointment here would be especially painful given that companies including Amazon spend billions of dollars building infrastructure today.
But this week, Amazon’s CEO Andy Jassy announced some groundbreaking AI predictions, which is great news for investors. Does he know something Wall Street doesn’t? Let’s find out.
Image source: Getty Images.
Amazon’s work in AI
First, let’s take a quick look at Amazon’s presence in the AI space. The company is a user, developer, and seller of AI, so it benefits greatly from this technology. Amazon’s large e-commerce business leverages AI in a variety of ways, from launching shopping assistants for customers to harnessing the power of AI to plan optimal package delivery routes.
But Amazon’s real focus is on AWS. Cloud business is based on in-house developed chips, Nvidiaa fully managed service called Amazon Bedrock. All of this has helped AWS achieve an annual revenue run rate of $142 billion. Amazon is investing heavily to meet demand for AI and non-AI services, and importantly, the company is generating revenue from new capacity as soon as it becomes available.
Still, as mentioned above, investors are concerned about the level of investment in AI and question whether the future returns will be worth it.
Today’s changes
(-1.66%) $-3.47
current price
$205.29
Key data points
Market capitalization
$2.2 trillion
daily range
$204.32 – $207.56
52 week range
$161.38 – $258.60
volume
2.2M
average volume
48M
gross profit
50.29%
Jassy’s revenue forecast
So let’s consider the latest comment from Jassy. Amazon’s chief executive predicts that AI could boost AWS’s annual revenue to $600 billion. This is double his previous prediction and roughly equivalent to the size of Amazon’s entire business today. Reuters reported the comment, citing an internal meeting, and the forecast is for 10 years from today.
“There are very clear and significant demand signals,” Jassy said, according to comments compiled by Reuters. “We’re not just spending $200 billion in capital investment in hopes of seeing big growth in AI.” Amazon announced in its latest earnings report that it would spend this year at this level, and its stock price fell.
Here’s why this news from Jassy is a game changer. This shows that AI may have what it takes to one day make AWS a business roughly as big as Amazon as a whole today. Amazon’s most recent full-year sales were $716 billion. This is supported by Jassy’s observations about growth to date and future prospects given the capabilities of the technology. Jassy is involved in developing AI and communicating with customers who use it, and is well-positioned to understand how the story will unfold.
It’s also worth noting that AWS has traditionally driven Amazon’s profits. It currently accounts for 57% of Amazon’s total operating profit. The strength of this business is critical to the overall health of the company.
What does Jassy know that Wall Street doesn’t? Wall Street is worried about AI spending, but here Jassy suggests it doesn’t need to be. AI is on track to drive Amazon’s revenue growth over the next decade. This is great news for Amazon shareholders and investors in many other blue-chip AI stocks.
