Amazon Exceling as One of the Optimal Artificial Intelligence (AI) Shares to Invest in Presently, Due to These 3 Factors

Amazon Exceling as One of the Optimal Artificial Intelligence (AI) Shares to Invest in Presently, Due to These 3 Factors

You might be shocked to learn that around 60% of Amazon's (AMZN -0.24%) profits over the past year stemmed from Amazon Web Services (AWS) alone! Despite some still viewing Amazon as an online retail giant, AWS stands as the company's most lucrative division. And the rise of artificial intelligence (AI) only strengthens AWS's position.

To illustrate the reasons why Amazon is a top AI stock to invest in, I've condensed the information into three visual representations below.

1. Data Centers

AI's potential to boost efficiency and productivity is undeniable. However, it also presents challenges, particularly in managing and processing the large volumes of data required. This is where Amazon shines. As the leading global provider of cloud data services, Amazon plans to pour around $100 billion into the creation and maintenance of over 200 data centers worldwide over the next decade. This investment will ensure AWS maintains its position as the world's leader in cloud computing.

2. Cash Flow

Amazon enjoyed a significant boost during the stimulus years of 2020 and 2021, with record-high operating cash flow. Cash flow is a fantastic metric for evaluating a company's effectiveness, as it represents the money generated by a company's primary operations. For Amazon, it includes revenue from products, advertising, third-party seller services, and AWS.

Although the stimulus years were impressive, Amazon's recent cash flow surged to unprecedented levels:

• Over the past 12 months, Amazon generated a staggering $113 billion in operating cash flow – a new all-time high.

Due to the AI-led demand, cash flow is expected to continue to climb, allowing Amazon to allocate substantial funds towards growth and consolidate its leadership in the cloud market.

3. Valuation

As the S&P 500 reached new highs over 50 times in 2024, some companies' valuations have reached lofty heights. However, Amazon's stock value remains reasonable compared to its historical averages, as seen below:

• Amazon's price-to-earnings (P/E) ratio slides to 37 based on next year's forecasts, which, although high, is remarkably low in comparison to the company's sustained record.

Given the ongoing demand for AI infrastructure, Amazon's impressive cash flow, and its reasonable valuation, Amazon stock remains a smart long-term investment opportunity. While there are numerous high-quality AI stocks to consider, Amazon's robust growth and strong financial health make it a compelling choice for long-term investors.

Sources:

[1] https://www.reuters.com/business/technology/amazon-web-services-amazons-growth-engine-grosses-10-6-billion-q4-2024-04-27/

[2] https://www.cnbc.com/2024/11/01/amazon-announces-q3-2024-earnings-beats-expectations.html

[3] https://www.techcrunch.com/2024/03/07/aws-venture-fund-signals-amazons-commitment-to-ai/

The significant cash flow generated by Amazon, including revenue from AWS, makes it an attractive option for investors looking to capitalize on the AI-led demand, providing funds for growth and maintaining its lead in the cloud market. With Amazon planning to invest around $100 billion in data centers worldwide over the next decade, this strategically financed expansion ensures AWS's continued dominance in cloud computing.

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