Artificial intelligence (AI) stands as the current belle of the ball in the stock market. A frenzy revolving around this technology propelled the Nasdaq Composite to a staggering rise of over 40% in the previous year. Notably, mega-cap tech behemoths, celebrated as the “Magnificent Seven,” significantly bolstered the S&P 500, propelling it to unprecedented heights.
Among the Magnificent Seven, names like Microsoft and Nvidia continuously bask in the limelight, and rightly so. Microsoft’s significant investment in ChatGPT developer OpenAI, alongside the soaring demand for Nvidia’s GPUs in quantum computing and machine learning realms, underpins their prominence.
An often overlooked gem within this technological tapestry is the e-commerce and cloud computing authority, Amazon (NASDAQ: AMZN). Despite intriguing forays into AI investments, Amazon’s growth in the cloud domain is experiencing a slowdown, compounded by economic uncertainties.
An expedition into why 2024 may spell promise for Amazon investors and a deep dive into the company’s AI landscape positioning could illuminate why Amazon warrants more acclamation vis-à-vis its counterparts.
The Nasdaq’s Potential Trajectory
The acclaimed Nasdaq Composite index has a historical narrative spanning over half a century. Mired in its archives are only 14 annual downturns. Noteworthy is the fact that in the recent two decades, the Nasdaq underwent a plunge exceeding 30% merely three times – in 2002, 2008, and 2022. The penumbra of 2008 shrouded the infamous onset of the Great Recession, while 2022 echos with the reverberations of rampant inflation. Yet, with the Federal Reserve’s proactive measures like interest rate hikes aimed at curbing inflation, the narrative shifts.
Coincidentally, in the aftermath of the nosedives of 2002 and 2008 emerged remarkable Nasdaq resurgences. Encapsulated within the following years were noteworthy rebounds – averaging 16% annually from 2003 to 2007 and an average spike of 30% from 2009 to 2010.
Albeit past performances don’t pledge allegiance to future outcomes, the historical vista painted elucidates the capital markets’ resilience. In light of Nasdaq’s robust 2023 performance paired with the burgeoning AI interest, the stage is set for potentially another stellar year for the tech-dominated index.
Image source: Getty Images.
Amazon’s Strategic AI Ventures
In a significant September move, Amazon unveiled a multibillion-dollar investment in Anthropic, rivalling OpenAI. This strategic alliance brims with features geared toward fortifying Amazon’s cloud domain.
Recent years have witnessed a parsimony attitude across businesses, sculpting stringent financial norms. This paradigm notably impacted tech entities as the demand for enterprise software dwindled. Amazon didn’t evade this trend, with its cloud sales tapering. Further complicating matters, Amazon’s cloud segment constitutes nearly 70% of its operational profits.
An insight into the Anthropic investment stewardship reveals Amazon’s strategy to stoke cloud enthusiasm. As per the pact terms, Anthropic designates Amazon Web Services (AWS) as its prime cloud custodian. Moreover, Anthropic will leverage Amazon’s in-house semiconductor chips for training future generative AI models.
In a symbiotic ballet, Anthropic might transmute into a potent lead generator for AWS. As Amazon unfurls more AI-injected cloud applications, a swell in demand could be imminent thanks to Anthropic.
The Anthropic nexus’s potential seems undervalued, if not misconstrued. Analogous to Microsoft’s propagation of ChatGPT across its operating system, Amazon could mirror this blueprint to incite AWS acceleration.
Amazon’s Compelling Valuation
AMZN PS Ratio data by YCharts
The insightful chart above positions Amazon against the Magnificent Seven on a price-to-sales (P/S) metric. At a P/S ratio of 3.1, Amazon ranks as the most attractively valued stock within this cohort through this lens.
The conspicuous premium trading of Nvidia and Microsoft may predicate on their demonstrated ability in reaping AI rewards. The indicated trends might insinuate enticing prospects
Unveiling Amazon Stock’s Hidden Value in AI Landscape
The Quest for AI Supremacy: Amazon’s Untapped Potential
Investors have cast a skeptical eye on Amazon, questioning its prowess in artificial intelligence relative to its industry counterparts. Some argue that the lack of robust AI capabilities or subdued growth trajectory might prevent the company from commanding a premium valuation.
Nevertheless, amidst the doubts, I see Amazon’s current stock price as undervalued, akin to a hidden gem waiting to be discovered. The realm of AI is vast, with the power to revolutionize Amazon’s fundamental e-commerce and cloud services.
Strategic Moves for Future Growth
Amazon seems to be on the right path towards securing long-term sustainable growth. While other tech giants may overshadow Amazon in certain aspects, underestimating Amazon’s potential in the AI domain would be shortsighted. The present moment could present a rare occasion for astute investors to acquire shares at an appealing valuation.
Uncover Opportunities Amid Contrary Views
Amid differing opinions, the narrative around Amazon stock continues to evolve. As perspectives clash on the company’s AI prospects, it opens up a unique landscape for investors to navigate. The current valuation of Amazon’s stock may just be the tip of the iceberg, concealing hidden opportunities beneath the surface.
Investing with a Critical Eye
Before diving into Amazon stock, it’s crucial to weigh the pros and cons. The analysts at Motley Fool Stock Advisor recently unveiled their top picks for potential high returns, where Amazon did not feature. This dynamic underscores the diversity in investment strategies and the necessity of a discerning approach.
Stock Advisor offers investors a comprehensive roadmap to success, with insights on portfolio construction, regular analyst updates, and two fresh stock recommendations each month. Since 2002, the Stock Advisor service has outperformed the S&P 500 by a staggering margin.
Considering the shifting landscape of the stock market, it’s imperative to explore diverse perspectives and investment avenues. Varied viewpoints contribute to a holistic understanding of the market dynamics and uncover hidden gems that might go unnoticed within the confines of conventional wisdom.
*Stock Advisor returns as of February 20, 2024