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Wednesday, 27 September 2023

Amazon (AMZN) ups the ante in the AI race. Is the stock a buy?

by Rose White

For Amazon.com, Inc. (NASDAQ: AMZN), expanding the cloud infrastructure business has been a key priority lately, while maintaining its dominance in the e-commerce market. Currently, the company is busy ramping up its AI capabilities with a focus on making AWS products more intelligent.   

Amazon (AMZN) ups the ante in the AI race. Is the stock a buy?

AMZN is a promising technology stock that grew consistently this year, recovering from the selloff that battered the market last year. However, the trend reversed about a week ago and the stock traded sideways since then, largely in line with the general market trend – tech stocks are hit by macro uncertainties and the Fed’s hawkish monetary policy stance.

The Stock

But the stock is expected to resume its upward journey and set new records in the coming months. AMZN, which has long been an investors’ favorite, is unlikely to disappoint long-term investors. Moreover, the valuation is just right from the buyers’ perspective. The outlook for e-commerce and cloud computing — Amazon’s key areas of operation — is quite bright, with experts predicting double-digit growth for these industries in the coming years.

The revenue contribution of Amazon Web Services, the company’s fastest-growing business segment, is increasing steadily. And, that is extending Amazon’s lead in the cloud space, which is significant because it looks set to become a key player in generative AI. The tech firm is investing heavily in artificial intelligence technology as it looks to build AI-supported features into AWS products. The company is probably trying to catch up with Microsoft which is integrating OpenAI into key areas of the business, like Azure.

Anthropic Deal

Last week, Amazon launched an AI-supported version of its Alexa voice assistant at the annual devices and services event. On Monday, the company and AI startup Anthropic announced a strategic partnership to bring together their respective technologies and expertise to accelerate the development of Anthropic’s future foundation models and make them accessible to AWS customers. As per the agreement, Amazon will invest $4 billion in Anthropic.

From Amazon’s Q2 2023 earnings call:

“We’ve launched more than 10 countries in the past six years and are always evaluating our customer experience as well as our path to profitability, and we like the path we’re on. As a reminder, it took us nine years to reach profitability in the United States. In addition, across our North American and international results, inflation headwinds also continue to ease, most notably in fuel prices, linehaul rates, ocean and rail rates. Moving to AWS. Year-over-year revenue growth was 12%, with growth rates stabilizing during Q2.”

Financials

Amazon has delivered consistent profit growth in recent quarters, which is expected to continue in the near future considering the clout of its e-commerce business and rapidly growing cloud infrastructure segment. In the second quarter, the company generated a net income of $0.65 per share, compared to a loss of $0.20 per share a year earlier. That reflects double-growth revenue growth across all operating segments – North America, International, and AWS. Total revenues climbed to $134.4 billion and the results topped expectations.

Shares of Amazon traded higher on Monday afternoon, after opening the session slightly below $130. They have grown 34% in the past six months.

The post Amazon (AMZN) ups the ante in the AI race. Is the stock a buy? first appeared on AlphaStreet.

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