Amazon's valuation has nearly tripled over the past few years as AI has become a central part of the company.
Amazon continues to invest in various areas of AI, which can help accelerate revenue growth and profit margin expansion in the long run.
While Amazon stock has recovered from its famous decline last month, it remains an attractive buy for long-term investors.
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Although it does not mark the official start date of the Artificial Intelligence (AI) revolution, I personally like to use November 30, 2022 as a timestamp. This is the day when Openai releases Chatgpt to the public, and it actually changes the way businesses and consumers access information on switches.
At that time, Amazon(NASDAQ: AMZN) It has a market capitalization of US$835 billion. Today, the company is nearly three times worth – hovering around $2.3 trillion.
While Amazon may not be as focused as its “outstanding seven” peers Nvidia or Teslathe company is quietly building a booming AI ecosystem – Wall Street is finally starting to attract attention. Last month, investors learned that billionaire hedge fund manager Bill Ackman launched a stake in Amazon shares through his investment firm Pershing Square Capital Management.
Let's explore how Amazon integrates AI in its various businesses. More importantly, I will analyze the stock's recent price action to help me think why Amazon is positioning as Wall Street's first $5 trillion stock.
By far, the most obvious area in the Amazon ecosystem is Amazon Web Services (AWS), the company's cloud computing space. Over the past few years, AWS has invested billions of dollars in a startup called Anthropic that competes with Openai. Throughout the partnership, AWS has witnessed significant revenue acceleration and significantly improved operating margins.
Image source: Investor Relations.
This is an important concept for understanding, as AWS explains most of the operating profits throughout the Amazon ecosystem. Thanks to its successful partnership with Anthropic so far, Amazon now has greater financial flexibility to incorporate it into other AI-powered services.
For example, Amazon is also testing various forms of AI robotics in its fulfillment centers, which theoretically can bring new levels of efficiency and automation to processes previously managed by human labor.
Finally, Amazon is also developing its own custom chipsets – called Trainium and Pebleentia. In the long run, these may be an opportunity for Amazon to supplement its existing hardware business more while entering new markets to compete directly with existing semiconductor designers.
Image source: Getty Images.
At the time of writing (June 11), Amazon's stock fell about 1% this year. While it may be exciting initially, consider that stocks have rebounded very high since April to around $167.
YCHARTS AMZN data.
I suspect Ackman took advantage of the sell-off last month and bought the DIP. I asked this question because it is interesting that the Amazon post at Pershing Square is not included in the 13F file for the first quarter. Instead, Ackman's Amazon stance was reported publicly after a call with investors.
The chart below benchmarks Amazon's market capitalization growth relative to several of its seven peers since the release of Chatgpt. I'm intentionally excluding apple and Tesla From this analysis, I can't see a way to compete directly with Amazon.
YCHARTS's AMZN market value data.
There are several notable gains from the above trends.
First, Amazon's valuation is much higher than both Microsoft and letter In the past few years. This is important because both companies compete with Amazon in the cloud computing market, especially in the cloud computing market. I think this is a potential signal that despite the increased investment in AI infrastructure from competition, investors may be more optimistic about Amazon's ability to maintain an advantage.
Furthermore, it is clear that NVIDIA is by far the seven best investments in the entire AI revolution. But, as I mentioned, Amazon actually has a unique opportunity to start competing with Nvidia by introducing its new chipset.
In my opinion, Amazon has a solid foundation to continue accelerate Revenue and profit growth in the long run. Although monsters have been run over the past few years, I think investors will continue to premature Amazon stocks relative to peers, thereby further increasing their valuations in the coming years.
For these reasons, I believe Amazon’s current trajectory supports the idea that the company can see a market capitalization increase more than triple and reach a $5 trillion valuation before its peers.
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John Mackey, former CEO of Amazon's subsidiary Whole Foods Market, is a member of the board of directors of Motley Fool. Alphabet executive Suzanne Frey is a member of the board of directors of Motley Fool. Randi Zuckerberg is a sister of former marketing development director, Facebook spokesperson, and Meta Platform CEO Mark Zuckerberg, and a member of the Motley Fools’ board of directors. Adam Spatacco posts in Alphabet, Amazon, Apple, Metaplatform, Microsoft, NVIDIA and Tesla. Motley Fool owns and recommends letters, Amazon, Apple, Meta Platform, Microsoft, Nvidia and Tesla. Motley Fools suggest the following options: January 1, 2026, Microsoft $395 Phone, Short January 2026, Microsoft $405 Phone. Motley Fool has a disclosure policy.
Prediction: This unstoppable “Magnificent Seven” member will be the first $5 trillion stock on Wall Street, and billionaire Bill Ackman just bought the DIP
