Amazon Web Services offers tools that allow companies to build artificial intelligence (AI) applications without needing their own infrastructure.
Amazon's suite of businesses stands to gain significantly from integrating AI into them.
Amazon plans to spend $100 billion this year on capital expenditures, with most going toward AI infrastructure.
For a while, it seemed like artificial intelligence (AI) was the hottest topic in the business and investing world. Companies rushed to integrate it into their products and services, investors rushed to pour money into any company dealing with AI, and the media couldn't seem to get enough of it.
Many big tech companies are still betting big on AI, and the future looks promising for many of them. However, this year, the AI-fueled stock price growth many of them experienced has cooled down a bit and reversed course. Amazon(NASDAQ: AMZN) is a prime example.
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From the start of 2023 through the end of 2024, Amazon's stock surged more than 160%. As of April 29 this year, its stock is down over 15%. Despite the struggles so far this year, Amazon is still one of the more important companies in the AI ecosystem and a top AI buy. Below are three reasons why.
1. Amazon Web Services is an important part of the AI landscape
Amazon Web Services (AWS) is the leading cloud platform in the world, with a market share of 30% as of the end of 2024. For perspective, the next two largest are Microsoft Azure and Google Cloud, with market shares of 21% and 12%, respectively.
AWS, which helped pioneer cloud computing, has become much more than just a storage and hosting service. It has become a go-to for companies training and deploying AI models. Think about it like this: AWS is to AI infrastructure as what Home Depot and Lowe's are to home improvement.
AWS has Amazon SageMarker, which makes training, building, and deploying machine learning models much simpler. It also has Amazon Bedrock, which lets customers easily build generative AI apps for their businesses without having to start from scratch, which would be extremely expensive and time-consuming.
Short of a massive disruption or business malpractice, no cloud platform should be able to compete with AWS in scale for quite some time.
In 2024, AWS made $107.6 billion in revenue, up 19% year over year. That's more than the 2024 revenue of McDonald's, Visa, and Starbucks -- combined.
2. Amazon can integrate AI across a wide range of businesses
Amazon has developed into an impressive conglomerate. It has a notable presence in e-commerce (Amazon.com), cloud computing (AWS), advertising (Amazon Ads), entertainment (Amazon Prime), and healthcare (Amazon Pharmacy). And they all stand to gain a lot from Amazon integrating AI into them.
Amazon's e-commerce benefits from better product recommendations and inventory management. Its advertising segment benefits from more accurate audience targeting. Its entertainment segment benefits from personalized content suggestions. And its healthcare segment benefits from prescription management and patient data analysis.
AI won't be the saving grace for these businesses, but it will increase their value propositions as they compete against other companies in those industries.
3. Amazon is putting its money to use
One of the best parts of Amazon's e-commerce business is that it makes a ton of money, which allows Amazon to invest in other higher-margin business segments. And Amazon isn't shy about putting that money to use.
In the fourth quarter of 2024, Amazon spent $26.3 billion in capital expenditures, with much it going toward AWS AI infrastructure. This year, the spending is set to continue at that rate, putting Amazon's spending at more than $100 billion, according to its chief financial officer.
Being able to spend $100 billion not only highlights Amazon's financial strength, but it also indicates the company's commitment to leading the AI race and ensuring it remains a leader in the AI ecosystem.
Amazon's stock is a buy now, but its true value will be realized over the long run when its spending and investments begin to pay off.
If you're concerned about the high volatility in the stock market right now, consider dollar-cost averaging to slowly but surely acquire shares (or more shares, if you're already an investor).
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Stefon Walters has positions in Lowe's Companies, McDonald's, and Microsoft. The Motley Fool has positions in and recommends Amazon, Home Depot, Microsoft, Starbucks, and Visa. The Motley Fool recommends Lowe's Companies and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
