Amazon (AMZN) has several powerful, potential, positive catalysts that should enable its growth to accelerate tremendously within the next few years. One of these strong potential growth engines is Amazon Leo, the conglomerate’s satellite broadband system which can be utilized by the military down the road. Among Amazon’s other, major shots on goal are its advertising business, its AI chips, its AI compute cluster, and its grocery business.
Given the huge potential of all of these offerings, along with the company’s current, strong growth, I believe that Amazon, changing hands at a relatively low forward price-earnings ratio of 28 times, is dramatically undervalued and is especially attractive for long-term investors.
Amazon Leo and the Ad Business
Due to start providing service to some businesses at the end of this year, Leo will focus on offering broadband to firms and consumers in areas that currently have difficulty obtaining internet service. It is slated to begin providing service to consumers in 2026. Leo is off to a strong start, as it has obtained the right to provide broadband in nearly 324,000 locations in the framework of the federal government’s Broadband Equity, Access and Deployment (BEAD) program.
Additionally, at least three companies –JetBlue, (JBLU) Crane Worldwide Logistics and Hunt Energy — have committed to using Leo. Starlink, which also offers satellite broadband and has been in business for several years, reportedly has more than 8 million customers. If Leo can obtain 8 million customers and charge them an average of $75 per month, it will generate $7.2 billion of revenue annually. Assuming that the initiative raises AMZN’s operating income by $5 billion per year, that would equate to an increase of 7.3%, based on the company’s 2024 OI of $68.6 billion.
Meanwhile, Amazon is working with L3 Harris (LHX) in an effort “to deliver integrated, resilient Satellite Communications (SATCOM) solutions to governments and militaries worldwide.”
Amazon has had a vibrant advertising business for many years. But the unit seems to be reaching a positive turning point, as AMZN has launched partnership[ps with multiple, other ad providers, and the business’ revenue came in at $17.7 billion last quarter, representing nearly 10% of the firm’s total Q3 sales of $180.2 billion. And because the advertising business has very high profit margins, its profits probably constitute much more than 10% of the firm’s overall earnings (AMZN does not provide data on the ad unit’s profitability). Among the companies with which Amazons ad unit has announced partnerships in recent months are Netflix (NFLX), Sirius XM (SIRI), and Spotify (SPOT).
AI Offerings and Fresh Food
The revenue generated by the company’s AI chips, known as Trainum, is generating rapidly and appears poised to soar in the medium term. The second version of the chips, Trainium 2, ” continues to see strong adoption, is fully subscribed (and) is now a multibillion-dollar business that grew 150% quarter-over-quarter,” CEO Andy Jassy said on the company’s Q3 earnings call held last month. Trainium 3, which is expected to be launched at the end of 2025, will be used by many more businesses than Trainium 2, Jassy said. Many “very large and..medium sized” companies are “quite interested in Tranium 3,” the CEO stated.
Moreover, Jassy indicated that Trainium is 30%-40% less costly than competing AI chips, and hundreds of thousands of them have been successfully used by Anthropic, one of the world’s leading AI companies.
More specifically, Anthropic is using Amazon’s compute cluster– Project Rainier –which utilizes nearly 500,000 Trainium chips, to train its very well-regarded large language models known as Claude. Given the huge success that Anthropic has achieved with Claude, many other tech firms are likely to want to utilize Project Rainier in the medium-to-long term.
Finally, Jassy suggested that the company’s same-day perishables business, which kicked off about 12 months ago, has become very successful. Now available in 1,000 cities and expected to reach 2,300 by the end of December, the service’s popularity among Americans has surprised Amazon, Jassy said. In light of Jassy’s enthusiasm and the company’s decision to grow the geographic footprint of the business so quickly, I believe that the grocery business could also become a meaningful contributor to the company’s revenue and profits.
Amazon’s Q3 Growth and The Bottom Line on AMZN Stock
Amazon’s revenue climbed 13% in Q3 versus the same period a year earlier to $180.2 billion, while its operating income, excluding one-time items, came in at $21.7 billion, versus $17,4 billion in Q3 of 2024.
Given this powerful growth, the company’s huge opportunities, and the low valuation of AMZN stock, I believe that Amazon is one of the best Big Tech names in which to invest.
*This article is intended to be informational only; it is not financial advice.
