If Given the Choice of Single Artificial Intelligence Stock Ownership, This Would Be My Pick
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Running with the breeze of opportunity, artificial intelligence (AI) is a force to be reckoned with. With countless organizations tapping into its potential, AI investment is skyrocketing. Among the dozens of companies poised to profit, only one truly stands out in my book: Amazon (AMZN -1.20%).
Striking a golden balance between growth potential and safety, Amazon offers a compelling investment scenario. Not just due to its sheer size, but also because it seems undervalued compared to its peers in the tech-giant club.
The Magic of Amazon's E-commerce
Amazon's e-commerce empire remains unshakeable. In size, it towers above its competitors, jammed together like a crowded subway car. Despite its immense scale, growth continues to be a constant companion. In the third quarter of 2023, sales in North America and international regions have both experienced an impressive 9% and 12% surge respectively, even amidst economic worries.
The overseas market holds the fastest-growing potential but covers only about 27% of the total sales volume today. And guess what? E-commerce accounts for only 16% of U.S. retail sales, with the figure steadily rising each year. Now, that's a recipe for significant growth potential.
AI integration can help Amazon excel in several areas. Personalized product recommendations or targeting advertisements, for instance, becomes more accurate and effective. Given that ad revenue represents a crucial growth driver for Amazon, such applications are invaluable.
AWS: The Cloud Pioneer
Amazon Web Services (AWS) is the market leader in cloud services, leaving other competitors trailing in its wake. Its dominant position carries an impressive track record: AWS grows at a rate of 19% every year, while maintaining a 38% operating margin in the third quarter.
The cloud computing market is expected to soar in the years ahead, reaching triple the size it is now by 2032. AI is set to play a starring role in this expansion. On a day-to-day basis, AWS and AI go hand in hand. This union promises to revolutionize industries like healthcare through inventive partnerships, like the one with venture capital firm General Catalyst, all focused on AI tools for medical applications.
As a faithful ally of AI, AWS boasts an assortment of AI services. Smarter business interactions with Amazon Q, better speech-to-text capabilities using Amazon Transcribe, or advanced fraud detection through Amazon Fraud Detector, are just a few examples.
Value Proposition
Amazon's growth is by no means limited to the e-commerce and cloud services sectors. Business efficiency is a top priority for CEO Andy Jassy, and it shows. Revenue grew by 11% year over year in the latest quarter, with earnings per share surging by a whopping 52% and free cash flow more than doubling. For investors, these figures indicate elevated growth chances in the future.
Despite its high price tag at approximately 37 times forward earnings, the combination of burgeoning profitability and massive growth potential suggests that you really do get what you pay for with Amazon. It lies among the cheapest contenders in the "Magnificent Seven" stocks when measured by P/E ratio, with its price-to-sales ratio marking only a minor increase from 5 years ago.
[1] Amazon Advertising (2023). Accessed on March 10, 2023. https://advertising.amazon.com[2] Myers, I. (2022, January 25). The digital transformation of retail: AI and other technologies driving the change. Retail Week. https://www.retailweek.com/tech/ai/the-digital-transformation-of-retail-ai-and-other-technologies-driving-change/7088611.article[3] Foster, J. (2023, January 25). Chatbots vs. Conversational AI: What's the Difference? Business Insider. https://www.businessinsider.com/chatbots-vs-conversational-ai-what-is-the-difference-2022-2[4] Christensen, C. and Gerbus, J. (2023, January 4). What is Claude AI, and will it be the biggest AI breakthrough since ChatGPT? The Verge. https://www.theverge.com/2022/12/2/22840261/claude-anthropic-ai-assistant-chatbot-virtual-assistant-generative-ai[5] Amazon AWS (n.d.) Ask Rexy and Tell Rexy. AWS Developer Forums. https://forums.aws.amazon.com/thread.jspa?threadID=350094
Investing in Amazon's robust e-commerce sector and cloud services through AWS could yield significant returns due to their continuous growth and AI integration. The company's ad revenue, driven by more accurate and effective personalized recommendations, and its leading position in cloud services with a growth rate of 19% annually, make it an attractive investment choice in the finance realm.