With Amazon’s (AMZN) satellites, known as Amazon Leo, poised to start generating needle-moving revenue for the company in the medium term, and the tech giant likely to benefit tremendously from the success of AI phenom Anthropic, AMZN stock looks like an intriguing pick for growth investors at this point.
Notably, the tech giant’s shares are trading at rather low valuations. At the same time, the Street has recently shown more interest in buying the name, and one of the Street’s most successful investors has accumulated a large position in Amazon stock.
The Satellite Business Will Likely Start Boosting AMZN Stock in the Next Year
In an interview published on October 8, Rajeev Badyal, head of Amazon’s broadband initiatives, said the firm has enough satellites to start providing service to customers. Further, AMZN intends to start implementing “initial service” this year, as it is currently just waiting for a number of satellites to move into optimal position and perform work on the ground.
Soon after Amazon Leo kicks off, the corporate customers and partners that have already signed deals with the tech giant will start generating significant revenue for the firm. Among the impressive names on that list are Delta (DAL), JetBlue (JBLU), DirecTV Latin America, Sky Brasil, and Vodafone (VOD).
Moreover, Badyal indicated that several other companies Amazon hasn’t identified have agreed to use its satellites. Given the size of the corporate customers the tech giant has identified, revenue from them alone could meaningfully improve Amazon’s financial results and stock.
Retail Rewards
But AMZN also looks poised to obtain significant funds from retail customers. According to Chris Weber, the firm’s VP of Business, Leo’s service will be significantly faster than that of Starlink, the internet satellite service provider owned by Elon Musk’s SpaceX (SPCX).
Specifically, Leo’s downlink and uplink speeds are 1 Gbps and 400 Mbps for its Leo Ultra, respectively, while Starlink’s equivalent metrics vary by service and location, with reports around 200 Mbps. Assuming Leo is around the same price as Starlink, Leo’s faster speed should enable it to both take customers from Starlink and obtain greater market share than Musk’s firm in the markets in which they will both compete under the federal government’s BEAD program.
Another factor that’s likely to attract millions of consumers to Leo is Amazon’s plan to bundle other offerings, such as Amazon Prime and Fire TV, with Leo. “There are lots of assets within Amazon that we can pair with Leo to bring new value to consumers,” Weber explained.
On the defense side, the Space Force chose Amazon in August as one of five firms allowed to demonstrate that its satellites can provide information to other companies. Leo’s inclusion in the program suggests the Space Force intends to award it contracts in the future. Additionally, last December, NASA identified Amazon Leo as a “commercial partner,” indicating that the latter agency intends to use Leo in the future.
A Big Beneficiary of Anthropic’s Success
Anthropic’s annual revenue run rate reached $65 billion in July, representing a huge jump of about 600% versus the same period a year earlier. The tremendously successful start-up has agreed to buy $100 billion of cloud services from Amazon in the next decade. With many businesses and governments rushing to increase their utilization of AI, and Anthropic having become the leading provider of AI agents, the start-up could easily spend much more on Amazon’s offerings.
Amazon is also likely to benefit from its 21% stake in Anthropic. Based on estimates that Anthropic is now worth $2 trillion, Amazon’s stake would be worth about $420 billion. And because Anthropic will reportedly launch an IPO soon, that amount could surge tremendously within several months.
Down the road, Amazon may easily sell a significant portion of its stake to acquire more companies, fund its own AI expansion, and/or carry out share buybacks. It could even institute a significant dividend. Any of these steps would likely boost AMZN stock by meaningful amounts.
A Low Valuation, Momentum, and a Vote of Confidence From a Top Investor
The stock’s P/E ratio is just 23. Based on the company’s historical P/E levels, that valuation is quite low. For example, about a year ago, its P/E ratio was 31; roughly two years ago, it was about 40; and about a decade ago, it was 191. Meanwhile, suggesting the Street is warming to the name, from the market close on October 1 to the morning of October 12, shares advanced 6.5%.
And finally, Peter Thiel, a co-founder of both PayPal (PYPL) and Palantir (PLTR), both of which were very successful, has made AMZN stock his top holding as of the end of the second quarter. More specifically, his hedge fund owned 495,000 shares of the tech giant at the end of Q2, representing a hefty 28% of its holdings.
This article is intended to be informational only; it is not financial advice.
