Towards the end of 2022, the digital assistant ChatGPT brought generative artificial intelligence (AI) into the limelight. This form of AI leverages machine learning models to produce various types of media, including text, images, and video. Since its introduction, businesses across all sectors have poured substantial investments into generative AI, aiming to enhance workforce productivity by automating tasks.
Nvidia, a prominent chipmaker, has reaped significant rewards from this trend. Its revenue has almost tripled within the past year due to an exceptional surge in demand for its data center GPUs. Consequently, its stock price has soared by 145% over the same timeframe. However, investors who missed out on these gains still have opportunities to profit from the ongoing AI surge.
Bloomberg Intelligence predicts that sales from generative AI will skyrocket by 2,040%, reaching $1.4 trillion by 2032, with an annual growth rate of 41%. This upward trend is expected to elevate many companies in the coming decade, with Amazon (-0.73%) being a notable contender. Here’s why:
Amazon’s Strategic Investment in AI Across Its Core Sectors
Amazon holds a significant foothold in three rapidly expanding markets. Based on revenue, it operates the foremost e-commerce platform in North America and Western Europe. It ranks as the third-largest digital advertiser globally and the leading retail media advertiser. Furthermore, Amazon Web Services (AWS) dominates the public cloud sector concerning infrastructure and platform services.
The company harnesses artificial intelligence to enhance efficiency and generate new revenue streams across its three primary business segments:
E-commerce: This February, Amazon introduced a generative AI shopping assistant named Rufus for consumers, along with AI tools to assist sellers in creating product listings. Moreover, in its North American fulfillment centers, Amazon employs generative AI and computer vision to detect product defects before shipment. Additionally, machine learning optimizes warehouse inventory and last-mile delivery, streamlining its logistics operations.
Digital Advertising: Last year, Amazon launched a generative AI tool enabling marketers to craft compelling lifestyle images with their products, potentially leading to more cost-efficient advertising campaigns. Machine learning is also utilized to ensure consumers encounter relevant sponsored product ads on the marketplace.
Cloud Computing: AWS has developed custom AI chips for training and inference, offering a cost-effective alternative to Nvidia GPUs. The company has further enhanced its machine learning platform, SageMaker, and its generative AI platform, Bedrock. CEO Andy Jassy recently mentioned to analysts, “In the past 18 months, AWS has introduced over twice the number of machine learning and generative AI features into general availability compared to all other major cloud providers combined.”
In the broader context, AWS captured 32% of cloud infrastructure and platform services (CIPS) spending in the June quarter, outpacing its nearest rival, Microsoft Azure, by nine percentage points. AWS’s leadership in CIPS positions it as a significant beneficiary as businesses increase their AI-related expenditures.
In a recent commentary, Jim Kelleher from Argus noted, “As the top provider of infrastructure-as-a-service and other cloud services, AWS is uniquely positioned in the emerging AI-as-a-service market.” Additionally, a survey by Morgan Stanley reveals that executives collectively view Microsoft Azure and AWS as the public clouds poised to capture the most significant share in generative AI over the next three years.
Amazon Stock’s Attractive Valuation
According to eMarketer, retail e-commerce sales are anticipated to grow by 8% annually through 2028, with digital ad spending projected to rise by 10% annually over the same period. Nonetheless, retail media is one of the fastest-growing sectors in advertising, suggesting Amazon could surpass the average growth rate. Indeed, the company’s rapid market share expansion could see it overtake Meta Platforms as the second-largest ad tech company by 2030.
Furthermore, the International Data Corp. (IDC) forecasts public cloud spending to grow by 19% annually through 2028, with AI platform services within cloud computing expected to be the fastest-growing segment, compounding at 51% annually during this period. This outlook is favorable for AWS, given its CIPS leadership.
Such projections provide Amazon a solid opportunity for double-digit sales growth in the foreseeable future, with earnings likely to grow even faster as the company focuses on cost management. Wall Street anticipates Amazon’s adjusted earnings to increase by 25% annually through 2025, making its current valuation of 42 times adjusted earnings appear reasonable. Thus, now presents an opportune moment for patient investors to consider acquiring a small stake in Amazon stock.
