Amazon (NASDAQ: AMZN) started as an online bookseller in 1994 and has since evolved into a behemoth in e-commerce, cloud computing, streaming, digital advertising, and artificial intelligence (AI).
AI represents a monumental financial opportunity, and Amazon is embracing it from various angles. Recently, the company completed its $4 billion investment in premier AI startup Anthropic, propelling its advancements in both hardware and software realms.
Amazon is among the select few with a market value exceeding $1 trillion, with AI firmly in focus. While its peers also dabble in AI, Amazon’s revenue surpasses them all, yet its stock remains undervalued. Future investors might rue not seizing this moment in time.
Amazon’s Dominance in AI Landscape
Amazon Web Services (AWS) reigns as the globe’s premier cloud services platform, offering an array of solutions for data storage, digital sales management, software development, and AI app creation. Amazon’s ambition is for AWS to lead the three primary strata of AI.
The hardware layer comes first, with Amazon employing industry-leading Nvidia GPUs in its data centers for potent AI workloads. Amazon’s in-house chip designs, such as the Trainium2 chip, accelerate the training of large language models (LLMs) for applications like ChatGPT.
For developers opting for existing LLMs, AWS provides various models, including its Titan and offerings from top providers like Anthropic, Meta Platforms, and Stability AI. In addition, ready-to-use applications like CodeWhisperer and Amazon Q’s versatile chatbot streamline operations and bolster innovation.
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The Amazon-Anthropic Partnership Supercharges Progress
In a strategic alliance revealed in September 2023, Amazon vowed a $4 billion investment in Anthropic, with the final tranche of $2.75 billion concluding in March. Anthropic’s brainchild, Claude, a generative AI chatbot, outperforms rivals in manifold benchmarks, excelling in reasoning, math problem-solving, complex query responses, and content generation, including code.
Anthropic plans to leverage AWS as its primary cloud platform and train forthcoming AI models on Amazon’s chips, potentially enticing other developers away from Nvidia hardware. Furthermore, Anthropic will make its models accessible via AWS, granting customers a compelling reason to select Amazon’s cloud services.
Microsoft stands as the second-largest cloud provider globally and injected $10 billion into OpenAI in the past year. If Anthropic’s Claude continues its superiority over GPT-4, Amazon and AWS could gain a definitive edge in the AI sector.
Amazon’s Unbeatable Affordability in the Trillion-Dollar Realm
In 2023, Amazon raked in $574 billion in revenue, surpassing its trillion-dollar counterparts. Apple (NASDAQ: AAPL) was the nearest contender with $394 billion in fiscal 2023 sales.
Despite its revenue dominance, Amazon boasts a market capitalization of $1.9 trillion, lagging behind Apple’s $2.7 trillion. Calculated using the price-to-sales (P/S) ratio — dividing market cap by revenue — Amazon’s P/S ratio stands at 3.2.
Unleashing the Untapped Potential of Amazon: A Deeper Dive into AWS
Amazon’s Unorthodox Value Proposition
Amazon stands out in the tech sector, not with its trillion-dollar valuation, but with a P/S ratio substantially lower than peers like Apple, Microsoft, Nvidia, Meta Platforms, and Alphabet. Despite generating less profit due to razor-thin e-commerce margins, Amazon recorded a 12% revenue growth in 2023, outpacing Apple and Alphabet. This anomaly perplexes investors, who assign Amazon a valuation half that of its counterparts.
The Profitable Jewel: AWS
Within Amazon’s ecosystem, AWS shines as a highly profitable segment, boasting $24.6 billion in operating income from $90.7 billion in revenue in the past year. As forecasts predict a multitrillion-dollar impact from AI on the global economy, AWS could harbor immense untapped potential. Ark Investment Management asserts that AI software companies will amass $14 trillion in revenue by 2030, suggesting a lucrative path for AWS’s growth within Amazon.
The Crystal Ball: Investing in Amazon
As AWS escalates its contribution to Amazon’s revenue, the e-commerce giant’s profitability could soar. Despite skepticism surrounding its valuation, investors who seize the opportunity now might reap substantial rewards in the future. The conundrum remains: is Amazon’s stock truly undervalued, poised to unlock its full potential?
The Final Verdict
While some speculate on the ideal timing to invest in Amazon, the stock market’s unpredictability lends an air of mystery to such decisions. Delving deeper into AWS’s promising prospects, it becomes evident that Amazon’s future could be brighter than anticipated. For those bold enough to take a chance now, the rewards might be just as vast as the potential AI impact on the global economy.