Amazon's AI Strategy Drives Growth and Positions It as a Top AI Stock

3 Reasons Amazon Is 1 of the Best Artificial Intelligence (AI) Stocks to Buy Right Now | The Motley Fool

Would it surprise you to hear that 60% of Amazon's (AMZN -0.24%) total operating income came from Amazon Web Services (AWS) alone over the past 12 months? It's true! While some still consider Amazon an online retailer, AWS is the company's best moneymaker. This is even more important given the rise of artificial intelligence (AI). Rather than use thousands of words, below are three charts that show why Amazon is one of the best AI stocks to own today. AI is a boon for efficiency and has the potential to wildly increase productivity over time. However, the technology brings its own set of challenges. As shown below, managing and processing the vast amount of required data is the largest one: This is where Amazon comes in. The company is the world's leading provider of cloud data services and intends to stay there. Amazon plans to invest around $100 billion in over 200 data centers worldwide in the next decade. This will ensure that AWS has the capacity to continue as the global leader. AWS functions much like a utility, where customers pay for the data they use. This is a tremendous business model in a world where data needs are constantly growing. The segment grew 19% in Q3 2024 to $27.5 billion. Over the trailing 12 months, it also surpassed $100 billion in sales and $36 billion in operating income. With AI demand and expanded capacity, AWS will continue to power profits for a long time to come. Amazon was a major beneficiary when the stimulus flowed in 2020 and 2021. People were spending, interest rates were near zero, and Amazon's operating cash flow soared to record highs. Operating cash flow is essentially the amount of money a company's primary business generates, making it a terrific metric to judge success. In Amazon's case, it is the cash created from product sales, advertising sales, third-party seller services, and AWS. While the stimulus years were excellent, Amazon's recent operating cash flow has ,exploded much, much higher: The $113 billion generated over the past 12 months is by far an all-time high, dwarfing the 2020-2021 boom. Much of this is the result of surging sales in AWS. Due to AI-driven demand, cash flow should continue to reach new heights, allowing Amazon to invest heavily in growth and sustain its lead in the cloud. The S&P 500 index hit a new all-time high over 50 times in 2024, and many companies' valuations are very high. However, Amazon's stock price is still reasonable. Based on the abovementioned cash flow and earnings, it trades below five-year historical averages, as shown below. Amazon's price-to-earnings ratio drops to just 37 based on next year's estimates, which may still sound high but is quite low historically for the company. Despite the market's rapid rise, Amazon is still a great value for long-term investors. There are dozens of quality AI stocks to consider, and I recommend owning at least a few. Given the intense demand for data, Amazon's prolific cash-flow generation, and a reasonable valuation, Amazon stock is an excellent choice for long-term investment.

The Bull Market Keeps Growing. 3 Reasons to Buy Amazon Like There's No Tomorrow.

The S&P 500 (^GSPC -0.29%) confirmed its presence in a bull market last year and has been roaring higher ever since. The index finished the year with a gain of 23% and has climbed more than 3% so far in 2025. Investors have piled into growth stocks that may benefit from a strengthening economy, favoring companies in game-changing technologies like artificial intelligence (AI) and quantum computing. And this movement continues as these technologies are in the early days of their growth stories. Today's $200 billion AI market may top $1 trillion, while quantum computing should soar from about $1 billion to more than $5 billion by the end of the decade, according to Markets and Markets data. One of the stocks benefiting from this momentum is a leader in two growth markets -- e-commerce and cloud computing -- and this player also is set to win in the areas of AI and quantum computing as it offers platforms to its cloud customers. I'm talking about Amazon (AMZN -0.24%), a tech giant that's built a solid earnings track record over time. Let's check out three reasons to buy this top stock like there's no tomorrow. 1. Cost structure efforts are bearing fruit. A couple of years ago, rising inflation weighed heavily on Amazon -- hurting the company's costs and limiting its customers' buying power. But Amazon acted wisely, using that moment as the opportunity to revamp its cost structure. This involved cutting jobs, working to make the fulfillment network as efficient as possible, and other moves. All this helped the company shift from its first annual loss in a decade to a profit just a year later -- in 2023. And today, Amazon's earnings continue to climb as its cost-structure work bears fruit. One decision in particular is a major one that could continue to offer Amazon savings. This is the shift to a regional fulfillment model in the U.S. from a national one -- the idea is that inventory now is kept closer to the customer. This has helped reduce Amazon's cost to serve, and by doing this, the company can continue to offer the lowest prices to keep customers coming back. And Amazon said in its latest earnings call that it's making moves that "will have meaningful long-term impact" on cost to serve -- so more savings could be just ahead. 2. The AI investment already is boosting revenue Amazon has gone all-in on AI, both in its e-commerce and cloud businesses. In e-commerce, it's using tools to help gain in efficiency -- for example, designing the fastest delivery routes -- or helping customers and sellers on its platform. And in Amazon Web Services (AWS), the cloud business, the company has seen its efforts already lead to revenue growth. From the start, AWS pledged to become a force in every layer of AI, from the selling of a wide variety of AI chips to customers building a platform from scratch to offering a fully managed service that allows customers to tailor existing large language models to their needs. And AWS also is present in the area of AI apps, for example offering the Amazon Q assistant for software developers. All this has helped AWS reach an annual revenue run rate of $110 billion. So AI already is proving to be a high-growth business for Amazon. 3. Agentic AI and quantum computing could lead to a new wave of growth And this brings me to my next point: AI growth may be far from over. AI's initial phase involved the building out of infrastructure -- that's still going on, and AWS should continue to benefit. At the same time, a new stage of growth is beginning, involving using AI in the real world, often through AI agents. These agents are software designed to study complex problems, reason, find a solution, and apply it. Amazon has launched Project Amelia, an AI assistant to help sellers on its platform, as one of its initial moves in this area. And AWS offers customers a platform to build their own AI agents, suited to their needs. As for quantum computing, AWS provides customers with a variety of services, allowing them to strengthen their research and even access hardware from specialists like Rigetti Computing. AWS already is the world's biggest cloud services provider -- so the audience for its services is there, ready, and waiting for each new launch or innovation. And as these companies pour more investment into using AI and exploring quantum computing, they're likely to go to AWS, and this movement could supercharge Amazon's revenue growth and the stock price in the quarters to come.