3 Things About Amazon That Smart Investors Know
After a challenging 2022 during which macroeconomic headwinds and fears of a potential recession caused steep declines in e-commerce stocks, Wall Street has grown bullish about Amazon (NASDAQ: AMZN) again.
Though still more than 25% below its late 2021 peak, the company's stock has climbed about 57% since Jan. 1, primarily thanks to growing prospects in artificial intelligence (AI).
Recent advances in AI have caused a boom in the industry, with the sector projected to expand at a compound annual rate of 37% through 2030. Meanwhile, Amazon has made a major push into the market this year, expanding its AI offerings on Amazon Web Services (AWS) and venturing into chip development. As a result, now is an excellent time to consider the tech giant before its stock soars any higher.
Here are three things about Amazon that smart investors know.
1. It's expanding its generative AI services
Though it appeared to have fallen behind Microsoft last year, Amazon has since ramped up its AI efforts. Microsoft's role as the biggest investor in ChatGPT developer OpenAI allowed it to procure exclusive licenses on several AI models, giving it an edge in the market. However, the competition appears to have been the push Amazon needed.
Amazon has spent the first half of 2023 heavily investing in AI, and added several new services to AWS.
In June, it unveiled Bedrock, a generative AI tool that uses a large language model similar to ChatGPT to help customers build chatbots and image generators. To appeal to the healthcare industry, AWS has launched HealthScribe, which is capable of recording and analyzing doctor-patient conversations.
Meanwhile, a new service called CodeWhisperer makes software development more efficient by generating suggestions for code based on natural language prompts and the already-written code in a project.
According to a Reuters report, the new services attracted thousands of clients to AWS, including Sony, Ryanair, and Sun Life. With its leading market share in cloud computing infrastructure, Amazon could outperform Microsoft and other competitors over the long term.
2. It plans to undercut Nvidia
Amazon has also become one of the first cloud infrastructure companies to expand into the hardware side of the industry. CEO Andy Jassy revealed in early July that the company is taking on chipmakers like Nvidia and AMD by developing its own AI chips.
Amazon has so far developed two chips: Inferentia and Trainium. Jassy says his company's hardware will have "much better price-performance than you'll find anywhere else."
Nvidia currently dominates the AI chip industry with a market share of about 90%. As a result, many tech firms are calling on other semiconductor companies to develop their own high-end silicon in hopes that increased competition will lower the cost of these chips.
If Amazon's hardware can match Nvidia's power at an attractive price, it could soon have an immensely lucrative position in the market. Meanwhile, expanding into hardware is promising as it diversifies Amazon's role in AI, strengthening its outlook.
3. It's a solid long-term buy
Amazon's stock is now up by around 50% over the last five years, a significantly smaller overall gain than its market peers. For instance, over that period, Apple's stock has soared by 314% and Microsoft's shares are up by 219%. However, that's no reason to write off the e-commerce giant.
Last year's economic downturn hurt Amazon's business far more than it did many other tech companies. It experienced significant declines in its e-commerce earnings. As a result, Amazon has more work ahead if it's going to surpass the all-time high share price of $186 it achieved in July 2021.
However, consistently easing inflation has already brought improvements to its e-commerce segments this year, and its AI efforts are likely to pay off substantially over the long term.
Amazon's stock price growth of 784% over the last decade is likely more indicative of its potential, and Wall Street seems to agree. Out of the 55 analysts covering Amazon, 50 rated it as a buy or a strong buy, and many are bullish on its expanding position in AI.
Alongside a recovering e-commerce business and a stock down 28% from its high, Amazon is a no-brainer for those looking for a long-term investment.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon.com, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
