Although many on the Street are fretting about Amazon’s (AMZN) huge investment in its AI business and the possibility of AI disrupting its e-commerce unit, the tech giant’s future actually remains very bright. In addition to reporting strong overall third-quarter financial results recently, the firm has many ways to benefit from its AI and satellite undertakings, making AMZN stock look very cheap at its current levels.
Further, on the e-commerce front, worries about threats from AI agents appear to be exaggerated.
Amazon’s AI and Satellite Businesses Should Send Amazon Stock Soaring in the Longer Term
The AI revolution is poised to boost Amazon’s shares tremendously. Of course, AI is enabling AWS, the firm’s cloud business, to grow prodigiously. Last quarter, the unit’s revenue soared 39.3% versus the same period a year earlier to $45.98 billion, while its operating income jumped 55% year-over-year (YOY) to $17.8 billion. And boding very well for AWS’ longer-term outlook, CEO Andy Jassy expects its growth rates to eclipse 40% in 2027 and 2028. Even more exciting are AWS’ triple-digit percentage backlog growth and Jassy’s prediction that it could become “a trillion-dollar revenue business in the next five to ten years.” The CEO made the comments on the company’s Q3 earnings call, which was held on October 29.
Given the huge growth in AWS’ backlog and the immense promise of several of its endeavors, I can understand Jassy’s optimism. For example, token sales of its AI inference service, Bedrock, soared an incredible “17 times year-over-year” in Q3, making it “the fastest growing multi-billion dollar service in AWS’s history,” the CEO reported.
Moreover, the company’s AI chips business is also expanding at tremendous rates, as the revenue generated by its Gravitron and Trainium chips, which are used for inference and training, respectively, “each increased more than 20 times year over year,” Jassy reported.
Also noteworthy is that multiple, large companies, including IBM (IBM) and Capital One (COF), are utilizing “AWS Continuum to discover, prioritize, validate, and remediate code vulnerabilities at machine speed,” the CEO noted. Finally, Anthropic alone has agreed to buy $110 billion of products and services from AWS in the next decade.
On the satellite front, Amazon’s satellite network, Leo, is expected to launch by the end of the year and has acquired several likely lucrative customers, including AT&T (T), Apple (AAPL), Delta (DAL), Hunt Energy and Uzbekistan’s top telecom company.
Spooking some on Wall Street, Amazon is spending heavily to pave the way for the massive profit growth AWS and Leo will produce over the long term. But AMN shareholders should be rewarded handsomely as the company’s bottom line expands within a year or two.
Fears About E-Commerce Disruption Look Overdone
After Meta (META) released its AI model, Muse, which some consumers are widely using for internet shopping, some have worried that AI agents could disrupt Amazon’s e-commerce business. But for several reasons, I don’t expect this scenario to play out.
First, Muse is not making a dent in Amazon’s e-commerce business: in the nine months ended in June, the number of units shipped jumped 15% versus the same period a year earlier, while gross sales increased by $90 billion. Also, Amazon’s overall Q4 revenue guidance was in line with analysts’ average estimate.
Moreover, the company’s share of the U.S. retail market continues to expand. As it delivers products more quickly and its Pharmacy and grocery businesses mature, the unit has powerful growth drivers that should more than offset any share taken by AI agents.
Finally, Amazon has its own quickly growing AI shopping agent, and, at least when it comes to shopping for most products, the majority of consumers will probably prefer to view pictures and product descriptions on their own, rather than relying on the judgment of AI agents.
AMZN’s Impressive Q3 Results and the Low Valuation of Amazon Stock
The firm’s revenue jumped 12% year-over-year to $202 billion, while its operating income advanced a huge 61% YOY to $28.1 billion.
Shares are trading at a forward P/E of 22.3. Given the firm’s strong growth and excellent outlook, Amazon stock is quite cheap at these levels.
*This article is intended to be informational only; it is not financial advice.
