Big tech is dominating the artificial intelligence (AI) narrative. However, a company may not be getting as much attention as its peers.
The excitement surrounding artificial intelligence (AI) is in full swing.Both S&P500 and Nasdaq Composite The index is hovering near record levels, and many on Wall Street are expecting more gains.
Among the hottest stocks in the AI space are the “Magnificent Seven” stocks. This is a catchy nickname used to collectively refer to mega-corporations. microsoft, alphabet, Nvidia, apple, meta platform, teslaand Amazon (AMZN -1.54%).
Microsoft and Nvidia are known as two of the early companies in the AI revolution. But Amazon, the leader in e-commerce and cloud computing, is quietly making notable advances of its own.
brian nowak morgan stanley He recently raised his price target on Amazon stock to $215, implying an upside of about 15% as of market close on April 10th.
Let's take a closer look at why now is a great time to buy Amazon stock.
cash flow is king
The past few years have been difficult for Amazon. The macroeconomy is plagued by abnormally high inflation, and the Federal Reserve has repeatedly raised interest rates aggressively.
The combination of persistent inflation and rising borrowing costs has had a major impact on both consumers and businesses. As a result, growth in Amazon's e-commerce and cloud software businesses has slowed as businesses and consumers rein in spending.
Nevertheless, Amazon's management has made adjustments and proven that the company can grow even during more difficult economic times. In 2023, inflation began to subside while artificial intelligence (AI) became all the rage in the technology sector.
Amazon's growth started to accelerate again, but what really shined was the company's profitability profile.
Image source: Amazon Investor Relations.
In 2023, Amazon generated an astonishing $36.8 billion in free cash flow. This is what is left over from cash flow after operating expenses and capital expenditures are excluded. This is quite a turnaround considering Amazon burnt through $11.6 billion in cash in the previous year.
The most encouraging thing about Amazon's consistently compounding cash flow is that it comes from many different aspects of the company's business.
Amazon divides its online and brick-and-mortar stores and advertising operations into geographic categories: North America and International. Total operating income for these segments in 2023 was $12.2 billion, a sharp reversal from 2022's combined operating loss of $10.6 billion.
But what really helped Amazon return to profitability was its cloud business. Amazon Web Services (AWS)'s revenue grew 13% year over year to $90.6 billion in 2023, with an impressive operating margin of 27%.
Amazon's strong performance in high-growth markets and its solid cash flow characteristics make it stand out among its peers. No wonder the company has been included in the portfolios of Cathie Wood and Warren Buffett.
There was a lot to celebrate in 2023, but Amazon isn't resting on its laurels. A smart investment in artificial intelligence (AI) could be the key to unlocking the next stage of the company's exponential growth.
Image source: Getty Images.
Artificial intelligence (AI) is a huge opportunity
Microsoft began its AI revolution in earnest after investing in OpenAI, the developer of ChatGPT. This move has triggered more aggressive spending in AI, especially by big tech companies.
Amazon followed Microsoft's lead in making its own investment in a competing platform called Anthropic. As part of the deal, Anthropic will use AWS as its primary cloud service provider. This is a huge deal and should not be underestimated. The partnership with Anthropic could serve as a catalyst to spark a new wave of lead generation for AWS and accelerate further growth in both sales and revenue.
Additionally, Anthropic uses Amazon's in-house Trainium and Inferentia chips to develop and power its generative AI models. This is a delicate opportunity that investors should pay attention to.For now, the semiconductor market is dominated by Nvidia and Advanced Micro Devices.
But Amazon's move into the chip market could be a lucrative opportunity in the long run, as it looks to disrupt several aspects of the AI space.
great review
The chart below benchmarks Magnificent Seven's stock price on a sales-to-sales (P/S) basis. Amazon's P/S of 3.4 is by far the lowest of this cohort.
AMZN PS Ratio Data by YCharts
My view is that Amazon's position in the AI industry is misunderstood. In contrast to Amazon, few companies can benefit from artificial intelligence (AI) in more than one way.
Given that Amazon's business spans e-commerce, cloud computing, advertising, and streaming, there are many ways the company can apply AI across its ecosystem. This could usher in a new period of exponential growth in both revenue and profits.
Given Amazon's cheap valuation relative to its peers, I think now is a great time to scoop up some stocks as long-term themes in artificial intelligence (AI) continue to play out. thinking.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
