Amazon and AI: The Future of Tech Investing

3 Reasons to Buy Amazon Stock Like There's No Tomorrow | The Motley Fool

Numerous tech stocks got a boost over the past year, thanks to the fervor around artificial intelligence (AI). E-commerce giant Amazon (AMZN -0.30%) was no exception. Amazon's stock rose from a 52-week low of $118.35 last year to a high of $201.20 in July. But its stock's resurgence wasn't entirely dependent on AI. Several reasons exist to invest in the e-commerce heavyweight, in addition to its AI ambitions. And now, its share price has dropped along with the broader stock market's recent decline, creating an opportunity to purchase shares well below their 52-week high. Here are three factors that make Amazon an outstanding stock to buy and hold for the long run. In its path to becoming a dominant player in the e-commerce industry, Amazon needed to construct impressive infrastructure to achieve its supply chain goals, such as fast shipping speeds. For example, the company uses AI to manage an army of over 700,000 robots in its warehouses to process customer orders around the clock. Recognizing that this is no small feat for businesses to achieve, Amazon decided to transform its e-commerce infrastructure from a cost-of-doing business model to an income generator. Last fall, it launched Supply Chain by Amazon, offering its various logistics capabilities to third-party retailers. According to CEO Andy Jassy, "That collective set of businesses is growing very significantly." Actually, the company spent years cultivating its revenue from third-party sellers. Now, it's a significant part of Amazon's income. Since Mr. Jassy became CEO in 2021, Amazon's fees collected through third-party seller services grew from 2021's $103.4 billion to 2023's $140.1 billion. In Q2, this part of Amazon's business accounted for nearly a quarter of its $148 billion in revenue. Amazon is one of the most-visited websites in the world. Its consumer base offers an enormous audience for advertisers to reach, propelling the growth of the company's advertising business. Today, Amazon is ranked third in the world in terms of digital advertising market share. Consequently, the company generated $12.8 billion in Q2 ad revenue, a 20% year-over-year increase. Its ad business is poised to grow further. The company began selling ads on its Amazon Prime Video service this year. The service has a sizable viewership, which is desirable to advertisers, considering Amazon's market share is among the biggest in the video streaming industry and rivals Netflix. In addition, ad sales are helping Amazon's bottom line. According to CFO Brian Olsavsky, "Advertising remains an important contributor to profitability in the North America and international segments." To expand its business further, Amazon is taking the bold step of delivering internet to the billions of people around the globe who lack reliable broadband access. The company is doing this by launching satellites into orbit through which consumers can get online. Its test launches last year were successful, and it plans to begin deploying satellites later this year. Amazon also ventured into the multitrillion-dollar healthcare business. It bought the digital healthcare platform One Medical last year and launched a subscription service for prescription medication in 2023. It expanded the program to Medicare members this year. Many other reasons exist to buy Amazon stock like there's no tomorrow. For instance, the company's AI capabilities are off to a strong start. Mr. Jassy stated, "Our AI business continues to grow dramatically with a multibillion-dollar revenue run rate despite it being such early days." AI helped the company's Amazon Web Services (AWS) division, which provides businesses with IT infrastructure, such as cloud computing, to grow Q2 net sales by 19% year over year to $26.3 billion. The company is taking its AI efforts to the next level by producing its own AI-optimized semiconductor chips. According to Mr. Jassy, "demand for our custom silicon, training, and inference is quite high, given its favorable price performance benefits relative to available alternatives." On top of that, Amazon is investing in these other businesses while improving its financials. Not only did its Q2 net sales grow 10% year over year to $148 billion, its Q2 net income reached $13.5 billion, double the $6.7 billion achieved in the prior year. This led to Amazon's diluted earnings per share (EPS) increasing to $1.26 in Q2, compared to $0.65 in 2023. Meanwhile, its free cash flow (FCF) over the trailing 12 months rose from $7.9 billion in Q2 of 2023 to $53 billion this year. Amazon's stock is well off its 52-week high at the time of this writing, so now is a good time to pick up some shares. Wall Street analysts agree. Their current consensus is a buy rating, with a median share-price target of $220 for Amazon stock. The company's many opportunities to grow its business -- especially in massive markets such as healthcare and AI -- make Amazon an attractive long-term investment.

Cathie Wood Is Buying Tons of This Hot Artificial Intelligence (AI) Stock, and It Might Surprise You | The Motley Fool

Famed growth investor Cathie Wood loves to invest in disruptive tech stocks, and investors love to see what's on her investing plate. Sometimes, it's her tried-and-true picks like Tesla and Teladoc Health, and sometimes it's an under-the-radar initial public offering (IPO) stock like Tempus AI. One stock you don't usually see in Ark Invest's picks is Amazon (AMZN -0.30%). But Cathie Wood's investment firm was buying shares last week like they were going out of style. Let's see why Amazon might be looking attractive to her right now. This isn't the first time Cathie Wood has bought Amazon stock. She's held it for years in several of her exchange-traded funds (ETFs). Her recent typical picks are the riskier, highly disruptive type, but Amazon caught her attention last week. Under founder Jess Bezos' leadership, Amazon developed a mandate that it calls "Day 1." It still uses this phrase frequently as a guiding force in how it approaches growth and innovation, as if each day it's starting anew. You can see this in its culture everywhere, and recently, AI has been driving its growth opportunities. Today, e-commerce and cloud storage, which are Amazon's main businesses, are so mainstream that they wouldn't catch Wood's attention. But AI is a peak disruptive force, making Amazon an attractive bet even for Wood. Current CEO Andy Jassy said that the AI business is growing "dramatically" and already had a multibillion-dollar run rate. Its position as the largest cloud-computing company gives it an incomparable data set that it's probing to create the highest standards in AI, and its clients are telling it that they want more flexibility at a competitive price point. Even though it works with companies like Nvidia right now for AI chips, Amazon is also building its own with these factors at play. This is translating into practical services for Amazon Web Services (AWS) customers. Jassy said that over the past 18 months, "AWS has launched more than twice as many machine learning and generative AI features into general availability than all of the other major cloud providers combined." He added that it's far from finished. What smart investors usually get right is timing. I don't mean to say that you can time the market, because you can't. But savvy investors wait for opportunities and buy stocks on dips, at bargain prices, and when they're out of market favor. Many investors are scared to buy those kinds of stocks. Intuitively, it makes sense to buy stocks that the market likes. But stocks that are already well-liked by the market almost by definition have already achieved strong gains, and the best stocks are often the counterintuitive buys, as long as you're OK with some risk. Cathie Wood isn't known for her love of undervalued stocks like Warren Buffett is, but it seems that she couldn't let go of the opportunity to buy Amazon stock as it plunged after earnings. Not only did she buy Amazon stock, she bought it on all five trading days last week, and she bought it for six of Ark Invest's eight ETFs. Amazon stock tanked after its second-quarter report, due mainly to two things: a slight miss on revenue expectations and sales guidance below the analyst consensus average. It's since started to climb again, but it remains 9% down since the earnings update. Ark has finished its buying spree, at least for the time being. Is it too late to buy? Maybe Cathie Wood got Amazon for a steal, but it still looks like a bargain. It's trading near its lowest valuation in 10 years and well below recent averages. In other words, having the option to buy Amazon stock at this valuation is a rare treat. I focused on AI here, because that's what Cathie Wood is likely seeing in this opportunity. But Amazon has tons of opportunities in e-commerce, advertising, streaming, healthcare, and more, and it's not too late to buy this standout stock at bargain-basement prices.