The allure of artificial intelligence (AI) is sweeping through the financial markets like a tempest. The S&P 500 and Nasdaq Composite are poised at the edge of record-breaking territory, fueling mounting optimism among the Wall Street elites.
Prominently shadowed in the AI limelight are the “Magnificent Seven” — a group monikered for giants like Microsoft, Alphabet, Nvidia, Apple, Meta Platforms, Tesla, and Amazon (NASDAQ: AMZN).
Luminaries Microsoft and Nvidia have taken the helm as early beneficiaries of the AI revolution. However, amidst the rumble, e-commerce maestro Amazon has quietly made notable strides of its own.
Brian Nowak, the oracle from Morgan Stanley, recently hoisted Amazon’s stock price target to $215 — hinting at a whopping 15% upsurge by the eve of April 10’s market closure.
Come, let’s unfurl the reasons why the current juncture might be a golden era to grasp a slice of Amazon’s stock.
The Reign of Cash Flow
The yesteryears have posed thorns on Amazon’s path. The macro landscape has bristled with rare inflation peaks, steering the Federal Reserve to deploy a cascade of vigor in interest rate hikes.
This marriage of soaring inflation and escalating borrowing costs cast a lurid shadow on both consumers and enterprises. Thus, Amazon’s bastions of e-commerce and cloud software witnessed a lull in growth as fiscal belts tightened.
Yet, Amazon’s alchemists adapted and showcased the wizardry to thrive in the somber economic backdrop. By 2023, the blazes of inflation subsided while the AI frenzy engulfed the tech precinct.
Amazon’s strides quickened afresh — notably, it’s the profile of profitability that radiated the brightest.
Image source: Amazon Investor Relations.
In 2023, Amazon birthed a monumental $36.8 billion in free cash flow, a residue from cash flow after operational expenses and capital splurges. A stark metamorphosis from the preceding year, where Amazon hemorrhaged $11.6 billion.
The panacea lies in Amazon’s burgeoning and cohesive cash flow, emerging from diverse echelons of its empire.
Amazon subsumes its online and physical emporiums alongside its advertising citadels into demarcated geographies dubbed North America and International. The amalgamated operational income for these fiefs in 2023 surged to $12.2 billion — an epic reversal from a $10.6 billion joint operational rut in 2022.
Yet, it’s Amazon’s cloud expanse that kindled the revival in profitability. Amazon Web Services (AWS) sauntered a 13% year-over-year revenue ascent in 2023, tallying $90.6 billion while flaunting a stunning 27% operating margin.
Amazon’s eminence in burgeoning domains, coupled with its robust cash churn, sets the company on a pedestal among its rivals. Little wonder that luminaries like Cathie Wood and Warren Buffett see merit in its innards.
But Amazon isn’t resting on its laurels post the 2023 triumph. Astute forays into AI might be the linchpin to unlock the next phase of Amazon’s hyper growth trajectory.
Image source: Getty Images.
The Enormity of Artificial Intelligence (AI)
Microsoft detonated the AI eruption via an investment in OpenAI, the architect of ChatGPT. This sired a flurry of aggressive AI gambits from tech titans, notably Amazon.
After Microsoft’s trumpet, Amazon paraded its own investment in rival Anthropic. This pact sees Anthropic leveraging AWS as its primary cloud maestro. A seminal juncture that cannot be underscored enough.
The compact with Anthropic beckons a fresh deluge of opportunities for AWS, fostering a catalyst for exponential growth — both upstream and downstream.
Moreover, Anthropic will harness Amazon’s proprietary Trainium and Inferentia chips to forge and enhance its generative AI models. A subtle vector that investors should diligently monitor. Currently, the semiconductor realm bows to Nvidia and Advanced Micro Devices.
However, Amazon’s plunge into the chip domain could burgeon into a profitable saga down the road, as Amazon unfolds a disruptive narrative across facets of the AI cosmos.
A Valuation of Magnificent Proportions
The panorama below juxtaposes the elite club of the Magnificent Seven stocks
Unlocking Amazon’s Potential through AI Integration
Amazon’s Price-to-Sales (P/S) ratio of 3.4 stands out as the lowest among its peers in the current landscape. This statistic alone paints a picture of potential untapped value within the company’s grasp.
The Case for Amazon’s AI Position
A deeper dive reveals that Amazon’s strategic positioning within the artificial intelligence (AI) realm is vastly underrated. While many companies struggle to harness AI’s benefits effectively, Amazon stands out due to its diverse business portfolio spanning e-commerce, cloud computing, advertising, and streaming services.
This broad scope provides Amazon with a myriad of opportunities to leverage AI technologies across its ecosystem. Such an integration could spark exponential growth in both revenue and profits, propelling the company into a new era of prosperity.
A Window of Opportunity
Furthermore, Amazon’s current discounted valuation relative to its competitors presents a unique opportunity for potential investors. The company’s forward-thinking approach to capitalizing on AI as a catalyst for growth positions it as a lucrative investment prospect.
As the prevailing trends in artificial intelligence continue to unfold, Amazon’s ability to innovate and adapt to these changes serves as a strong indicator of its viability as a long-term investment.
Strategic Investing Considerations
Before diving into Amazon stock, it’s crucial to consider expert insights. The team at Motley Fool Stock Advisor has highlighted the 10 best stocks for investors to consider, and while Amazon didn’t make the list, there are promising opportunities elsewhere.
The Stock Advisor service offers a roadmap for success, with consistent updates and stock picks to guide investors towards building a robust portfolio. Since 2002, the service has significantly outperformed the S&P 500, indicating a track record of success and informed decision-making.
Seize the moment, explore your options, and embark on an investment journey teeming with possibilities. The convergence of AI and Amazon’s strategic direction could pave the way for substantial returns in the foreseeable future.
