The world of artificial intelligence (AI) is ablaze with excitement, as the S&P 500 and Nasdaq Composite soar to record heights, fueling anticipation of more considerable gains.
Part of this AI frenzy involves the popular “Magnificent Seven” stocks, a name affectionately given to tech giants like Microsoft, Alphabet, Nvidia, Apple, Meta Platforms, Tesla, and Amazon.
While Microsoft and Nvidia have been early stars in the AI universe, the e-commerce and cloud computing giant Amazon has been quietly making significant strides of its own.
Morgan Stanley analyst Brian Nowak recently uplifted Amazon’s stock price target to $215, suggesting a robust 15% upside.
Let’s dissect why now might be the ideal moment to grab hold of Amazon shares.
The Reign of Cash Flow
The past few years have been rife with challenges for Amazon, facing steep inflation rates and aggressive interest rate hikes imposed by the Federal Reserve.
This economic turbulence significantly impacted consumer and business spending, causing a slowdown in Amazon’s e-commerce and cloud software divisions.
Nevertheless, Amazon’s adept management weathered the storm, demonstrating the ability to thrive even in such trying economic times. By 2023, as AI garnered immense popularity in the tech industry, Amazon’s growth trajectory started to pick up speed.
It was Amazon’s remarkable profitability that truly shone through.
Image source: Amazon Investor Relations.
In 2023, Amazon surged ahead, generating a staggering $36.8 billion in free cash flow, marking a remarkable turnaround from burning $11.6 billion in cash the previous year.
An encouraging sign was the diversified nature of Amazon’s cash flow sources, stemming from various facets of the business.
Amazon segments its online and physical stores, alongside its advertising ventures, under the regions of North America and International. Collectively, these divisions amassed $12.2 billion in operating income, a significant shift from a combined operating loss of $10.6 billion in 2022.
However, it was Amazon’s cloud services arm, Amazon Web Services (AWS), that truly reinvigorated the company’s profitability. AWS sales surged 13% year over year to $90.6 billion in 2023, flaunting an impressive 27% operating margin.
Amazon’s sterling performance in burgeoning markets, coupled with its robust cash-flow structure, sets it apart from its peers, warranting its position in the portfolios of both Cathie Wood and Warren Buffett.
Despite its successes in 2023, Amazon shows no signs of slowing down. Strategic investments in AI could serve as the key to unlocking the company’s next phase of explosive growth.
Image source: Getty Images.
The Promise of Artificial Intelligence
The AI revolution received a significant push when Microsoft invested in OpenAI, the developer behind ChatGPT. This sparked heightened AI investment from major tech players.
Following suit, Amazon ventured into the AI realm with its investment in Anthropic, a competing platform. Anthropic is set to leverage AWS as its primary cloud services provider, paving the way for enhanced lead generation and accelerated growth on both revenue and profit fronts.
Anthropic’s utilization of Amazon’s Trainium and Inferentia chips to refine generative AI models presents a subtle yet promising opportunity for investors. While Nvidia and Advanced Micro Devices currently dominate the semiconductor market, Amazon’s entry could potentially disrupt various aspects of the AI landscape.
Amazon’s foray into the chip market hints at lucrative prospects in the long run, as the company aims to revolutionize multiple facets of the AI sector.
A Priceless Valuation
The Magnificent Seven stocks stand as benchmarks of success, representing a conglomerate of titans driving the AI revolution forward.
The Untapped Potential of Amazon’s Artificial Intelligence Landscape
Unlocking Amazon’s Value Through AI
Amazon, with a price-to-sales (P/S) ratio of 3.4, holds the crown for the lowest P/S ratio among its peers, showcasing a significant margin in valuation in the market.
Shifting Perspectives on Amazon
Contrary to prevailing views, Amazon’s position within the artificial intelligence (AI) sphere is often misconstrued. While many companies have limited access to the benefits of AI, Amazon’s expansive business portfolio spanning e-commerce, cloud computing, advertising, and streaming offers a unique opportunity for the integration of AI technologies in various sectors.
This strategic move has the potential to trigger a new era of rapid revenue and profit growth for the company, positioning Amazon as a frontrunner in AI innovation.
Seizing the Investment Opportunity
Considering Amazon’s discounted valuation compared to its competitors, now emerges as an opportune moment for investors to acquire shares. The unfolding narrative of expanding AI applications across Amazon’s ecosystem underscores a promising path towards long-term growth and value creation.
Looking Ahead
As we navigate the complexities of the financial landscape, historical context reminds us of similar instances where undervalued companies with innovative strategies have seized the opportunity to redefine market dynamics.
Therefore, investors are urged to keep a keen eye on Amazon’s advancements in the AI realm, paving the way for potentially lucrative returns in the ever-evolving tech sector.