Amazon AMZN has experienced a 44% rally in its share price in the past year, outperforming the industry’s rise of 39.8% and the S&P 500 index’s return of 33.7%.
The company has been riding on solid momentum in its cloud computing arm — Amazon Web Services, which is being driven by strength in Artificial Intelligence (AI). It is continuously making strides in the Generative AI (GenAI) technology, which has now become mainstream in the cloud industry.
Amazon has been at the forefront of the AI revolution, integrating GenAI capabilities across its AWS product suite. Growing AI capabilities have positioned AMZN as a leader in the cloud market.
One-Year Price Performance
Image Source: Zacks Investment Research
Despite being the dominant player in the cloud market, the company faces strong competition from cloud giants like Microsoft MSFT and Alphabet’s GOOGL Google, which are also making concerted efforts to power their cloud solutions with GenAI.
This raises a crucial question of whether Amazon’s AI advancements will drive the momentum in its share price amid stiff GenAI and cloud competition.
Generative AI Strength: Key Catalyst for AMZN
AWS is gaining significantly from the solid adoption of Amazon Bedrock, which has provided it with a breakthrough in the generative AI space. Amazon Bedrock offers seamless access to high-performing foundation models from AI companies through an API.
The company’s introduction of Bedrock innovations, including custom model import and model evaluation capabilities and Guardrails, is a positive. These features are designed to provide customers with a secure, easy and fast way to develop advanced generative AI applications.
With a wide selection of foundation models from AI21 Labs, Anthropic, Cohere, Meta, Mistral AI and Stability AI, Bedrock offers seamless deployment, scalability and continuous optimization.
AWS also offers a generative AI-powered assistant called Amazon Q, which generates codes, tests and debugs, and has multi-step planning and reasoning capabilities.
The company’s collaboration with NVIDIA, through which it will make the latter’s Blackwell GPU platform available on AWS, is a plus. This will help speed up inference workloads for resource-intensive, multi-trillion-parameter language models.
Amazon recently unveiled a GenAI-powered service called AWS App Studio, which helps create enterprise-grade applications by leveraging natural language. It simplifies and fastens the process of developing an application from scratch.
AWS partnered with Intel INTC to enhance its AI capabilities. Per the terms, Intel will produce an AI fabric chip for AWS based on its most advanced process node, Intel 18A. It will also make a custom Xeon 6 chip on Intel 3 for AWS.
Expanding AWS Clientele Drives Growth
AWS is witnessing solid customer momentum on the back of its strengthening AI and GenAI capabilities.
Recently, Digital Domain partnered with AWS to scale its Autonomous Virtual Human Technology and introduce GenAI-powered features by leveraging the latter’s cloud infrastructure, GenAI and Machine Learning capabilities.
Smarsh entered a five-year agreement with AWS to enhance its offerings for the financial services industry by leveraging Amazon Bedrock.
AWS was selected by the Central Japan Railway Company. The latter is using AWS's Internet of Things, machine learning (ML) and GenAI capabilities to drive efficient operations for its next-generation, high-speed train service.
A global gold producer named Gold Fields shifted its end-to-end SAP and treasury systems to AWS. Gold Fields is also leveraging AWS’s analytics, ML and GenAI solutions to modernize technology infrastructure.
Accenture joined forces with AWS to develop the Accenture Responsible Artificial Intelligence platform. Accenture leverages AWS’s AI services, including Amazon Bedrock and Amazon SageMaker, along with AWS Control Tower, Amazon DataZone and AWS observability tools.
Infor, a leading provider of a global leader in business cloud software, recently selected Amazon Bedrock to deploy GenAI solutions embedded within Infor CloudSuite.
Robin AI teamed up with AWS to power its legal assistant by using Amazon Bedrock and Amazon SageMaker.
GE HealthCare selected AWS as its strategic cloud provider to accelerate healthcare transformation with GenAI. GEHC intends to utilize AWS’s ML and GenAI capabilities for this purpose.
Rising Estimates Paint Bright Picture for AMZN
AWS’s expanding customer base on the back of its growing GenAI capabilities is expected to aid its long-term prospects.
The Zacks Consensus Estimate for 2024 revenues is pegged at $634.49 billion, which indicates a year-over-year increase of 10.4%.
The consensus mark for 2024 earnings stands at $4.74 per share, implying year-over-year growth of 63.5%. The estimate has moved north by 2.4% over the past 60 days.
Image Source: Zacks Investment Research
AMZN Stock Seems Overvalued
Amazon's current valuation presents a premium scenario, with its forward 12-month Price/Sales ratio of 2.85X exceeding the industry’s average of 1.72X and the company’s historical median of 2.76X. This reflects a stretched valuation. Hence, investors should wait for a better entry point.
Image Source: Zacks Investment Research
Final Note
Amazon, being a cloud giant, presents a solid investment opportunity due to its deepening focus on generative AI, AI integration and innovative product development.
However, stiff cloud competition, lofty valuation and macro uncertainties do not bode well for the company’s near-term prospects.
For current shareholders, holding on to the stock seems prudent, as the company’s fundamental strengths and growth drivers are intact. New investors should, however, wait for a favorable entry point for Amazon.
Amazon carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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