The Future of AI Investments: Why Amazon Is the Stock to Buy

Nvidia has been the leading stock among the "Magnificent Seven" for the past few years, but I believe there's another major AI stock that presents a better long-term investment opportunity.

The unofficial kick-off to the artificial intelligence (AI) revolution can be traced to November 30, 2022, when OpenAI unveiled ChatGPT to the public.

Since the introduction of ChatGPT, both the S&P 500 and the Nasdaq Composite have seen significant highs, primarily driven by major technology stocks experiencing rapid growth. Among these, the "Magnificent Seven" stocks have emerged as significant winners.

Within this group, Nvidia and Meta Platforms have led the charge, witnessing gains of 601% and 409%, respectively, as of mid-March. Following closely is Amazon (AMZN), which has seen its stock appreciate by 102% since ChatGPT's release. Although this represents a remarkable performance compared to the broader indices, I believe that even greater gains lie ahead for Amazon.

In this article, we will delve into Amazon’s advancements in the AI sector and evaluate its investments and strategies that are beginning to yield substantial results. We will also assess Amazon's current valuation and make a case for why now is an excellent time to consider investing in its stock for the long haul.

Amazon's Major Investments in AI Are Paying Off

While Nvidia, Microsoft, and Tesla often dominate the AI conversation, Amazon has been quietly making significant progress.

The company has pledged an astonishing $8 billion to Anthropic, a close partner of OpenAI. This collaboration enables Anthropic to train its generative AI models using Amazon's cloud infrastructure. Moreover, Anthropic is utilizing Amazon’s custom Trainium and Inferentia chips, positioning itself as a future competitor to Nvidia's dominant graphics processing unit (GPU) business.

Following its partnership with Anthropic in September 2023, Amazon has experienced accelerated growth in its cloud division, Amazon Web Services (AWS). Notably, AWS revenues rose by 13% year-over-year in the fourth quarter of 2023 while operating income surged by 39% over the same period.

Moreover, by Q4 2024, AWS reported an impressive 19% year-over-year growth, with operating income growth reaching 48%. This trend underlines the successful integration of AI within AWS, contributing to consistent cash flow that enables further investment in AI-driven services.

Additionally, Amazon is committing substantial resources toward building data centers across several states, including Georgia and Ohio, with plans to invest upwards of $30 billion in this infrastructure over the next few years.

This strategic investment creates a cycle where Amazon's incorporation of AI within AWS leads to persistent growth in cash flow, which is then reinvested back into AI innovation.

Apart from its work with chips and cloud infrastructure, Amazon is also heavily investing in AI robotics. The goal is to automate processes within its warehouses, which could unlock significant efficiencies for its e-commerce operations, complementing the increased margins seen in the cloud services sector.

Amazon's Attractive Valuation Makes It a Compelling Buy

While Nvidia has captured the spotlight as a key player in the AI field, there are concerns regarding whether the company can continue its exponential growth over the next decade. As competition in the chip market intensifies, Nvidia's growth may eventually stabilize.

In contrast, I believe that Amazon is still in the early stages of its growth trajectory in AI. The company has multiple projects underway and remains focused on enhancing revenue while improving profit margins in both e-commerce and AWS.

Currently, Amazon's stock is trading at a relatively low valuation of 31 times its forecasted earnings. This is significantly lower compared to its five-year average and is one of the lowest values seen in over a year.

Considering the company’s impressive growth and the potential for substantial gains as AI technology becomes more integrated within its operations, I view this current valuation as an outstanding investment opportunity. For investors seeking a blend of growth and stability, now may be the ideal time to consider purchasing Amazon's stock and holding it for the long term.

Amazon, AI, Investment