Billionaires Shift Focus from Nvidia to Amazon as Top AI Investment

Forget Nvidia: Billionaires Are Buying Up This Artificial Intelligence (AI) Stock Instead | The Motley Fool

After an astronomical rise, investors are unsure about what to do with Nvidia stock. There are reasons it could continue to soar but also reasons why it might be taking a break. However, there's a different stock that most investors agree about buying right now: Amazon (AMZN 1.19%). This artificial intelligence (AI) powerhouse just keeps getting better, and billionaires are scooping it up. Some of the most prominent billionaires have been buying Amazon stock. Ray Dalio of Bridgewater Associates increased his position by almost 1.6 million shares, or 153%, in the second quarter. Ken Griffin of Citadel Advisors bought more than a million shares for a total of nearly 7.7 million. That's a 17% increase. I often remind investors that, alas, unless you are a billionaire hedge fund manager too, your portfolio makeup and decisions are going to look different from those of the ultra-rich. But Amazon is a stock that could appeal to almost any type of investor. Amazon has a bit of everything. It's a tech stock, but it's focused on retail. It offers the newness of AI but the value of an established industry giant. It is growing, but it's also highly profitable. That's why it could belong in all types of portfolios and has even ended up in value investor Warren Buffett's Berkshire Hathaway portfolio. Amazon has a dominant lead in two fast-growing categories: e-commerce and cloud computing. It accounts for more than a third of all e-commerce sales in the U.S. That's an astounding market share lead that is almost unmatched in any industry. It continues to invest in the e-commerce business with upgrades and deals. One of its newer and highest-growth areas is Buy With Prime, a service for third-party vendors to offer Amazon-supported Prime checkout on their direct-to-consumer websites. Buy With Prime sales are up 45% so far this year, and vendors have seen average revenue per shopper go up 16% when offering Buy With Prime. It keeps onboarding new merchants who see the benefits. The number of merchants offering it on their websites in 2024 has increased 25% year over year. One merchant pointed out that seeing the Buy With Prime button creates a higher level of trust when shoppers encounter a small business, and using Amazon's unrivaled logistics network in the U.S. creates more opportunities for these businesses. Amazon's trusted brand means a lot to both merchants and customers, and Amazon is leveraging that trust and brand to generate higher sales. It's also combining this effort with its advertising business, which is its fastest-growing segment. Merchants using the Buy With Prime service have the ability to advertise in third-party spaces through Amazon's platform, leveraging its pinpointed data to draw customers looking for their products to their direct-to-consumer websites. Amazon gets a cut of both the advertising revenue and the sale, and more than 80% of merchants using the service have said they have met or surpassed their return-on-investments goals. Last week, Amazon announced a new deal with PayPal Holdings to offer it as a checkout option for Buy With Prime. The impact was felt as a jump in PayPal's stock, but it could also boost Amazon's sales. Amazon stock also rose last week, but it was more likely as a reaction to lowered federal interest rates. That should generate heightened economic activity, and Amazon is well positioned, perhaps more than any other retailer, to benefit from that. AI is really for everyone, but the generative AI solutions that have captivated investor attention are geared toward Amazon's cloud customers through its Amazon Web Services (AWS) cloud-computing business. Amazon is going all out to stay in the AI race and pull ahead of its competitors. It has launched a slew of products, services, features, and upgrades to target every demographic of clients, from microbusinesses through enterprise giants, at every price point and need. Over the past two weeks, it announced a fresh round of deals with NXP Semiconductors, Oracle, and Intel in addition to new clients and rollouts. AWS had been reliable for high growth, typically topping 30%, before the recent bout of high inflation. The division's growth rate fell to very low double digits, but accelerated again in 2024's Q2 to nearly 18%. Either way, it's still largely responsible for Amazon's operating income, increasing its share to 63% of that metric in the second quarter. Although the AI business is already large and robust, it's still in its infancy. Technology is only going to heat up and get better, and Amazon should stay on top. Amazon stock had been trading with a 4-digit price tag before it split in 2021, but it now trades at a less intimidating 3-digit price. It's also trading close to its lowest price-to-earnings (P/E) ratio in years, making it even more accessible to any kind of investor. It's up 26% this year, and investors should feel comfortable following billionaires into a position in Amazon stock.

Why Amazon Stock Is a No-Brainer Artificial Intelligence (AI) Investment | The Motley Fool

Amazon (AMZN 1.19%) may not be the first stock that comes to mind when the words artificial intelligence (AI) are mentioned. However, Amazon is more exposed to this technological wave than most people realize. Furthermore, Amazon is excelling in its AI pursuits, and I think that makes the stock a no-brainer buy right now. Amazon and AI are no strangers. AI has already been incorporated across Amazon's commerce business through its online platform, advertising products, and logistics network. However, the latest wave of generative AI is boosting its cloud computing business, Amazon Web Services (AWS). Cloud computing providers are massively benefiting from this generative AI trend for a couple of reasons. First, companies need massive computing power and data storage when they try to create their own AI model. Buying a server dedicated solely to AI modeling isn't in the budget for many companies that want to dabble in this space, so renting it from a cloud computing provider like AWS is a cost-effective way to gain access to cutting-edge hardware. Second, business workloads are still migrating from on-site to the cloud. This is a slow transition and can be very tedious. However, with help from Amazon Q (its AI assistant), this migration is made easier. Cloud computing is expected to boom over the next five years, with Mordor Intelligence projecting that the overall market will rise from $680 billion in 2024 to $1.44 trillion by 2029. With AWS holding the largest cloud computing market share, it stands to benefit from this transition. AI is boosting AWS to new levels, but how does that help Amazon's finances out? Although Amazon's commerce divisions make up more than 80% of total sales, AWS accounts for 64% of the operating profits. This means that outsized growth in its AWS division will have an even greater effect on Amazon's profits. In Q2, AWS revenue rose 19% year over year, generating an operating profit margin of 36%. That's an impressive business. If it was a stand-alone business, it would gather a premium valuation. However, Amazon already has a fairly premium price point. At 40.2 times forward earnings, Amazon is by no means a cheap stock. This is likely the result of investors being excited about cloud computing and the effect AI will have on it. It also is a recognition that Amazon's commerce businesses could become far more profitable as it focuses on becoming more efficient. Over the long term, AWS will be a massive profit contributor and will get a huge boost from all of the new cloud workloads being brought online. This will drive the stock higher, and I think it makes the price tag on the stock worth paying. Amazon isn't the first choice for many AI investors, but I think there are compelling enough reasons to purchase the stock now to benefit from the AI wave.