Remains Amazon Still a Prospect for Millionaire-Making Investments?
Over the past few decades, big tech has played a significant role in creating wealth in America. With shares skyrocketing by over 240,000% since entering the public markets in 1997, Amazon (AMZN -0.66%) is a prime example of this trend.
However, past success does not guarantee future results. Let's delve into this digital colossus to predict what the future might hold.
A More Focused and Efficient Approach
Following the change in leadership, with Andy Jassy assuming the CEO role from Jeff Bezos in 2021, Amazon has switched gears from prioritizing rapid expansion to focusing on profitability. The company has eliminated numerous high-level positions, optimized its fulfillment system, and abandoned less profitable ventures. These changes have significantly improved its financial performance.
While Amazon's net revenues climbed by 11% annually to reach $158.9 billion, its operating income soared by an impressive 55% to $17.4 billion. This surge was aided by the core U.S. e-commerce sector, where the majority of these cost-cutting measures were implemented.
Amazon also profits from its Amazon Web Services (AWS) division, which contributed 60% of the company's operating income ($10.4 billion) during this period.
AWS specializes in cloud services, which offer processing power, storage, and other services online. Initially developed to accommodate Amazon's internal data needs, AWS has become its key growth driver, allowing it to tap into the latest technological advancements like generative artificial intelligence (AI).
Diversifying into New Growth Opportunities
Thanks to AWS, Amazon has turned itself into an early player in the AI space, competing with tech giants like Microsoft, Alphabet, and Meta Platforms, which are also investing heavily in the development of large language models (LLMs) and hardware.
Although it's too early to declare a winner, as the largest cloud service provider (with a market share of 31%), Amazon will likely have an advantage in monetizing this new technology compared to its competitors.
The AI sector involves renting Nvidia computing power to cloud clients, who utilize it to run their AI workloads.
Amazon is also spending on custom chips, such as Trainian and Inferentia, which can provide better value due to their specific task-focused design. Management claims this market is growing three times faster than cloud computing did at its current stage.
However, while the AI infrastructure market is experiencing rapid expansion, less profitably doesn't necessarily guarantee profitability for consumer-facing applications. Therefore, it remains uncertain whether this AI boom will be a sustained growth engine for Amazon's AWS segment.
Entering New Markets
Amazon's diversification strategies aren't confined to AWS. The company is also venturing into a new online marketplace called Haul, designed to challenge low-priced Chinese competitors like Shein and Temu. This platform will focus on low-cost fashion, home, and lifestyle items, with most items priced below $20 (most under $10), while maintaining profitability with direct shipping from China.
Although Haul may not revolutionize Amazon's business, it could help protect its 40% market share in U.S. e-commerce and contribute to its overall growth.
Is Amazon Still a Millionaire Maker?
While Amazon's diverse growth drivers make it an intriguing investment, it doesn't appear to fit the profile of a stock destined for exponential growth. Limited cost cutting can only take the company so far, and the recent increase in operational profitability might slow down in the near future due to more challenging quarter-over-quarter comparisons.
However, Amazon, with a forward price-to-earnings ratio (P/E) of 34, presents a promising investment opportunity. Its above-average valuation is justified by its strong positions in e-commerce, cloud computing, and AI, compensating for the premium paid.
Investors looking to capitalize on Amazon's future growth might consider diversifying their portfolios by investing in its offerings, such as its cloud services through Amazon Web Services (AWS). As AWS continues to dominate the cloud services market, it could generate substantial returns for Amazon shareholders.
Recent developments in AWS, like its focus on generative artificial intelligence (AI) and custom chips, indicate a strong commitment to staying at the forefront of technological advancements. This investment in cutting-edge technology suggests potential for continued growth and profitability in the AI sector.
