Artificial intelligence (AI) is the new hot topic. This technology is rapidly evolving and has the potential to significantly contribute to the growth of companies that become leaders in this field.
Many investors also seek to profit by investing in companies that appear to be ahead of the curve.There are many choices, but e-commerce giants Amazon (NASDAQ:AMZN) It's one of the best. Let's take a look at why AI is a great play to buy and keep forever.
Amazon's position on AI
The company has several initiatives related to AI. Last year, the company announced “Bedrock,'' a service provided through the cloud computing platform “Amazon Web Services (AWS).'' Bedrock helps developers build generative AI applications like ChatGPT, whether they focus on audio, images, or video.
Amazon also invested $4 billion in AI specialist Anthropic, which developed Claude, a family of generative AI platforms that competes with GPT-4, the latest version of ChatGPT.
Claude is also the name of a large-scale language model developed by Anthropic and currently offered by Amazon through Bedrock. A $4 billion investment may seem like a lot, but it's not that much money for Amazon, which generated about $32 billion in free cash flow last year. Management seems confident that the AI ​​investment will pay for itself several times over, with AWS operating at a hefty $100 billion.
Although AI still makes up a small portion of that total, CEO Andy Jassy said he believes it will “deliver tens of billions of dollars in revenue over the next few years.” AWS is already one of Amazon's most important growth drivers, and the benefits are far greater, especially in terms of revenue. Amazon's total net sales last year were $574.8 billion, an increase of 12% from the previous year.
AWS revenue grew at a modest pace, increasing 13.3% year over year to $90.8 billion. This represents just 15.8% of the company's total sales. But its $24.7 billion operating profit accounts for nearly 67% of Amazon's total operating profit of $36.9 billion. And Amazon's AI efforts will only improve his AWS performance.
Beyond AI play
There are many ways to invest in AI, but investing through a company like Amazon is a great way to reduce risk. Pure AI companies have the potential to grow quickly, but they could also sink if their efforts don't pay off or if the industry doesn't become as big as many analysts currently think.
However, Amazon's business is strong and diverse enough to handle these potential outcomes. The company remains the leader in e-commerce, with a 37.6% share of the U.S. market as of last year. There is still a long way to go in e-commerce growth, and Amazon will continue to benefit from this market for years to come. The company's e-commerce business enjoys network effects. In other words, the more sellers and buyers participate, the more powerful and valuable the platform becomes.
This makes the company's website more attractive to advertisers. According to management, the company's advertising business continues to grow rapidly. Elsewhere, the company is a leader in video and music streaming.
In addition to its leadership in several industries ripe for growth and its strong competitive position, there are other reasons why the company is a perennially great stock. The company has developed a culture centered on innovation and a focus on customer satisfaction.
It's no coincidence that Amazon has become a leader in e-commerce and cloud computing. And it's likely to continue investing in promising areas, such as healthcare, which is slowly but surely taking shape.
The conclusion is: Amazon is a great stock to capitalize on the rise of AI, e-commerce growth, and cloud computing. Long-term investors can't go wrong with this solid and versatile business.
Should you invest $1,000 in Amazon right now?
Before buying stocks on Amazon, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks For investors to buy now…and Amazon wasn't among them. These 10 stocks have the potential to generate impressive returns over the next few years.
when to think about it Nvidia This list was created on April 15, 2005…if you invested $1,000 at the time of recommendation. you have $488,186!*
stock advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month.of stock advisor For the service more than 4 times The resurgence of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor will return as of April 22, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Prosper Junior Bakinny has a position on Amazon. The Motley Fool owns a position in and recommends Amazon. The Motley Fool has a disclosure policy.
1 Unstoppable Artificial Intelligence (AI) Stocks to Buy and Hold Forever was originally published by The Motley Fool.