Artificial intelligence (AI) is the new big thing. Technology is evolving rapidly and could significantly contribute to the growth of companies that become leaders in this field.
Many investors also want to make money by investing in companies that appear to be ahead. There are many options, but the eCommerce titan Amazon (NASDAQ:AMZN) is one of the best. Let’s find out why it’s a great AI game to buy and keep forever.
Amazon’s position in AI
The company has made several moves in the AI space. Last year, the company announced Bedrock, a service it offers through its Amazon Web Services (AWS) cloud computing platform. Bedrock helps developers build generative AI applications like ChatGPT, whether they focus on voice, images, or videos.
Amazon also invested $4 billion in Anthropic, an AI-focused company that developed Claude, a family of generative AI platforms that competes with GPT-4, the latest version of ChatGPT.
Claude is also the name of the large language model developed by Anthropic, which Amazon now offers through Bedrock. A $4 billion investment seems like a lot, but it’s not that much for Amazon, which generated about $32 billion in free cash flow last year. Management seems confident that investments in AI will pay back many times over, and AWS has a run rate of $100 billion.
AI doesn’t account for a large percentage of that total yet, but CEO Andy Jassy said he believes it will “generate tens of billions of dollars in revenue over the next few years.” With its significantly larger margins, AWS is already one of Amazon’s most important growth drivers, especially on the bottom line. Last year, Amazon’s total net sales rose 12% year over year to $574.8 billion.
AWS revenue rose slightly faster year-over-year, at 13.3% to $90.8 billion – or just 15.8% of the company’s total revenue. But its operating income of $24.7 billion represented nearly 67% of Amazon’s total operating income of $36.9 billion. And Amazon’s AI work will only improve AWS’s performance.
More than an AI game
There are many ways to invest in AI, and doing so through a company like Amazon is a great way to mitigate risk. A pure-play AI company could soar, but it could also fall if its initiatives don’t pay off or if the industry doesn’t become as big as many analysts currently believe.
However, Amazon’s business is strong enough and diversified enough to handle these potential outcomes. The company remains the leader in e-commerce with a 37.6% share of the US market last year. E-commerce still has a lot of growth potential, so Amazon will continue to benefit from this market for years to come. Its e-commerce business benefits from the network effect: the platform becomes stronger and more valuable as more sellers and buyers join it.
This also makes the company’s website more attractive to advertisers. According to management, the advertising business continues to grow rapidly. Elsewhere, the company is a leader in video and music streaming.
In addition to its leadership position in multiple growth industries and a strong competitive advantage, something else makes it a standout stock for the ages: the company has developed a culture focused on innovation and a focus on customer satisfaction.
It is no coincidence that Amazon has become the market leader in e-commerce or cloud computing. And it will likely continue to invest in promising areas, including its work in healthcare, which is slowly but surely taking shape.
Here’s the bottom line: Amazon is a great stock to capitalize on the rise of AI, e-commerce growth and cloud computing. Long-term investors shouldn’t go wrong with this robust, versatile company.
Should you invest $1,000 in Amazon now?
Before you buy stocks on Amazon, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Amazon wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $488,186!*
Stock Advisor provides investors with an easy-to-follow roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks per month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns from April 22, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny holds positions at Amazon. The Motley Fool has positions on Amazon and recommends them. The Motley Fool has a disclosure policy.
1 Unstoppable Artificial Intelligence (AI) Stock to Buy and Hold Forever was originally published by The Motley Fool