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Over the past year, investors have turned toThe Great SevenStocks are looking for huge gains, and for good reason.
Technology companies with huge market capitalization such as Nvidia, Microsoft, alphabetand Meta platforms They all excelled. Standard & Poor's 500 and Nasdaq Composite Over the past 12 months. Much of this gain can be attributed to the growing interest in artificial intelligence, a market dominated by the Big Seven.
Despite the impressive performance of the above companies, I see another member of the Great Seven as a superior option for long-term investors.
E-commerce and cloud computing giant Amazon (NASDAQ: AMZN) The Nasdaq has underperformed over the past year, essentially delivering returns in line with those of the S&P 500.
With Amazon shares down about 14% over the past month, I think now is an excellent opportunity to buy the dip in Amazon shares.
Let's explore how Amazon is quietly disrupting the AI ​​landscape and evaluate why it now looks like a lucrative opportunity to buy shares at a very cheap valuation.
Don't call it a comeback
Cloud computing is one of the biggest opportunities in AI. Amazon faces stiff competition in the cloud infrastructure market from Microsoft Azure and Alphabet’s Google Cloud Platform (GCP).
Over the past 18 months or so, Microsoft has been rapidly ramping up its Azure platform thanks to the company’s $10 billion investment in OpenAI, the developer of ChatGPT. Alphabet has also done a respectable job of breaking into the cloud with a series of acquisitions, including MobiledgeX, Forseeti, Siemplify, and Mandiant.
Initially, these moves by Microsoft and Alphabet appeared to be hurting Amazon’s cloud revenue growth and profitability. However, the table below shows some encouraging new trends emerging in Amazon’s cloud computing business, Amazon Web Services (AWS).
|
category |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
Q2 2024 |
|---|---|---|---|---|---|---|
|
AWS revenue growth year-over-year of 10% |
16% |
12% |
12% |
13% |
17% |
19% |
|
AWS Net Operating Income Growth Year-Over-Year by % |
(26%) |
(8%) |
30% |
39% |
83% |
72% |
Data Source: Investor Relations
The numbers above show a really positive story for Amazon. Over the past year, Amazon Web Services has gone from a company that was suffering from a constant slowdown to one that has now grown for three consecutive quarters, all while significantly increasing operating income.
Amazon is a money printing machine.
It's good to see revenue and profit growth returning, but it's only one part of the bigger story for Amazon.
Amazon generates the majority of its operating profit from AWS. For this reason, the re-acceleration of its cloud computing business has had a direct impact on Amazon’s overall cash flow profile. In the quarter ended June 30, Amazon generated $53 billion in free cash flow on a trailing 12-month basis. Moreover, with a balance sheet that includes $86 billion in cash and equivalents, Amazon has little shortage of money to invest aggressively and give its competitors a run for their money.
One catalyst for renewed growth at AWS is Amazon's $4 billion investment in generative AI startup Anthropic.
This relationship is particularly important because Anthropic trains its AI models on Amazon’s in-house semiconductor chips—Trinium and Inverentia. This gives Amazon a direct line to compete with Nvidia as demand for semiconductor chips continues to boom.
Additionally, the company is also investing $11 billion in a data center project in Indiana. In my opinion, these investments reinforce Amazon’s ambitions to compete in all areas of AI as AWS enters a new phase of its development.
For these reasons, I believe that the AWS revenue and recurring profit growth, as described above, is just the beginning.
Excellent rating for investors
Amazon is currently trading at a price-to-free cash flow (P/FCF) ratio of 37.1, less than half its 10-year average. I find this odd, given that Amazon is a much larger and more sophisticated company today than it was a decade ago.
I think investors are either ignoring or underappreciating Amazon’s foray into AI. I think the future potential of AI could be baked into some of Amazon’s seven amazing companies, as several of them have easily outperformed the markets over the past year.
Amazon, by contrast, is already reaping the rewards from these AI-driven initiatives, and the company has a huge amount of cash to fund growth for the long term. For these reasons, I believe Amazon is the most lucrative opportunity among large-cap tech stocks right now. In my view, this is an excellent opportunity to buy Amazon stock right now.
Should You Invest $1,000 In Amazon Right Now?
Before you buy Amazon stock, keep this in mind:
the Motley Fool Stock Advisor The team of analysts has just identified what they believe to be Top 10 Stocks There are 10 stocks for investors to buy right now… and Amazon isn't one of them. The 10 stocks that hit the mark could deliver massive returns in the years to come.
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Susan Frey, CEO of Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former chief market development officer and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatako The Motley Fool has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: Buy $395 January 2026 calls on Microsoft and sell $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure Policy.
If I could invest in just one stock from the “Magnificent Seven” over the next decade, this would be it. Originally posted by The Motley Fool
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