In 5 Years, You’ll Regret Not Investing in This Trillion-Dollar Artificial Intelligence (AI) Stock

In 5 Years, You’ll Regret Not Investing in This Trillion-Dollar Artificial Intelligence (AI) Stock

Amazon (NASDAQ:AMZN) started as an online bookseller when it was founded in 1994. E-commerce remains the company’s largest source of revenue, but it has also expanded into other areas of the technology industry, including cloud computing, streaming, digital advertising and now artificial intelligence (AI).

AI could be one of the biggest financial opportunities in history, and Amazon is approaching it from several angles. The company just made the final payment on its agreed-upon $4 billion investment in leading AI startup Anthropic, a deal that will accelerate Amazon’s progress on both the hardware and software sides.

Amazon is one of six companies valued at $1 trillion or more, and all of its peers are in the AI ​​space. However, Amazon generates more revenue than all the others, and yet its stock is the cheapest of the group. Here’s why investors might regret not buying it when they look back on this moment five years from now.

Amazon establishes itself as a leader in artificial intelligence

Amazon Web Services (AWS) is the largest cloud global service platform. It offers hundreds of solutions to help businesses store data, operate digital sales channels, develop software, and create AI applications. Amazon’s goal is for AWS to dominate all three major layers of AI.

The hardware layer comes first. Like most cloud providers, Amazon fills its data centers with NvidiaIt is (NASDAQ:NVDA) graphics processing units (GPUs), which are the most powerful in the industry when it comes to handling AI workloads.

However, Amazon also designs its own chips; it recently released Trainium2, which is four times faster and twice as power efficient as the original Trainium chip, allowing developers to train large language models (LLM) much faster. LLMs form the basis of popular consumer applications such as ChatGPT.

But some developers prefer to use existing LLMs so they can build AI applications faster. This is the second layer. AWS offers a variety of templates, including its own called Titan and leading third-party templates like Anthropic, Metaplatformsand stability AI.

Out-of-the-box applications are the third and final layer. AWS offers CodeWhisperer, which helps developers accelerate their programming. Then there’s Amazon Q, a fully functional chatbot integrated with AWS. No two businesses are the same, which is why Q can be tailored to the tasks at hand to streamline projects, drive innovation and accelerate decision-making.

In 5 Years, You’ll Regret Not Investing in This Trillion-Dollar Artificial Intelligence (AI) Stock

Image source: Getty Images.

Amazon-Anthropic deal will accelerate progress on all fronts

In September 2023, Amazon and Anthropic announced a strategic partnership. Amazon is reportedly investing $4 billion in the startup, of which the remaining $2.75 billion was transferred in March to complete the deal. In exchange, Anthropic helps Amazon accelerate its penetration into the AI ​​sector.

Anthropic is the creator of Claude, a generative AI chatbot. Its recent Claude 3 models have reportedly outperformed competitors like OpenAI’s GTP-4 models in most multimodal benchmarks. This means they are better at reasoning, solving math problems, answering complex questions, and generating content like computer code.

Anthropic will use AWS as its primary cloud provider. It will also train its future AI models on Amazon’s chips, which could prompt other top developers to use them instead of Nvidia’s hardware, which has become the default choice. Finally, Anthropic will make all of its models available on AWS for customers to use, which could be an advantage when developers choose a cloud provider.

Microsoft is the world’s second-largest cloud computing provider and invested $10 billion in OpenAI last year. If Anthropic’s Claude continues to outperform GPT-4, it could give Amazon and AWS the ultimate advantage in the AI ​​race.

Amazon is the cheapest trillion-dollar stock by this measure

Amazon generated $574 billion in revenue in 2023, more than any of its trillion-dollar peers. Apple (NASDAQ:AAPL) was the closest with $394 billion in sales in its 2023 fiscal year (ended September 30, 2023).

Nonetheless, Amazon’s market capitalization stands at $1.9 trillion, compared to Apple’s $2.7 trillion. The price-to-sales (P/S) ratio divides a company’s market capitalization by its annual revenue, so in this case, Amazon’s P/S ratio is 3.2.

As the chart below shows, Amazon shares are significantly cheaper than all of its trillion-dollar tech peers on a P/S basis, which include Apple, Microsoft, Nvidia, Meta Platforms and Alphabet (Google).

PS NVDA Ratio ChartPS NVDA Ratio Chart

PS NVDA Ratio Chart

Amazon’s revenue grew 12% in 2023, a faster growth rate than Apple (2.8%) and Alphabet (9%), but its shares trade at half that of their P/S ratio. Amazon generates less profit (relative to its revenue) because its e-commerce business operates on razor-thin margins, which is one of the main reasons why investors give it a lower valuation.

However, AWS in particular is very profitable, with an operating profit of $24.6 billion on revenue of $90.7 billion last year. Here’s the bottom line: Most Wall Street forecasts suggest that AI will have a multitrillion-dollar impact on the global economy. Additionally, Cathie Wood’s Ark Investment Management estimates that AI software companies will generate $14 trillion in revenue by 2030.

Therefore, AWS may have significant untapped potential. As it grows and contributes more to Amazon’s overall revenue, the entire organization will become more profitable. When investors look back on this moment in a few years, they might be glad they bought Amazon stock at its current valuation.

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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. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

When you look back in 5 years, you’ll wish you bought this multi-billion dollar artificial intelligence (AI) stock was originally published by The Motley Fool

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