Scraping together enough cash to invest in the stock market isn't easy. Between monthly bills and other living expenses, paying down high-interest credit card debt, and topping up your emergency savings, many things take precedence.
But if you do have some money to invest -- say, $1,000 or so -- you should consider buying shares in an elite business that can help you protect and grow your wealth. One with a strong competitive position and large growth opportunities. A company like... Amazon.com (AMZN 3.20%).
Here's why.
Amazon is set to be a prime beneficiary of the AI megatrend
ChatGPT and other popular generative AI applications have taken the world by storm. People are excited about the potential for artificial intelligence to reshape huge swaths of the global economy while creating enormous profits for investors along the way.
Yet many investors are overlooking some important facts -- namely, that AI is built on cloud infrastructure and reliant on data -- and Amazon holds a commanding presence in both areas. "[Amazon Web Services (AWS)] not only has the broadest array of storage, database, analytics, and data management services for customers, it also has more customers and data stored than anybody else," Amazon CEO Andy Jassy said during the company's earnings call on Aug. 3.
As the leading cloud platform, AWS stands to benefit from the soaring demand for computing power for AI services. AWS is already a massive business that's on track to generate over $88 billion in annual revenue. It's also highly profitable, with an operating margin of more than 25% over the trailing 12 months.
Yet, incredibly, Amazon's cloud business is still early in its growth trajectory. AWS CEO Adam Selipsky estimates that only 10%-15% of information technology (IT) spending has shifted to the cloud from traditional data centers. "IT is so huge," Selipsky said during an interview with The Verge earlier this month. "It is several trillion dollars a year of spend, so it's easy to quickly see that most of the migration has yet to happen."
"It's still very early days in the cloud," according to Selipsky. And Amazon's AI-fueled gains are just beginning.
The e-commerce empire is also expanding
After growing at a torrid clip during the early stages of the pandemic, Amazon's online retail sales slowed as shoppers returned to brick-and-mortar stores once health restrictions were eased. But millions of people have experienced the savings and convenience Amazon provides, and they're likely to remain loyal customers.
Moreover, the e-commerce giant is doubling down on ultra-fast delivery. Amazon's same-day fulfillment services are proving popular with Prime members and driving a meaningful uptick in sales.
Jassy and his team are also working hard to improve the efficiency of Amazon's e-commerce operations. A redesign of the company's U.S. fulfillment network led to a significant reduction in the miles driven to deliver packages to customers, along with a corresponding decrease in shipping costs. These efficiency initiatives are boosting Amazon's profit margin while delighting customers with faster delivery times.
Advertising gives Amazon's shareholders another way to win
Amazon's e-commerce gains are also fueling the expansion of its highly lucrative advertising business. The online retail leader, in turn, is becoming a formidable force in the $680 billion digital ad industry.
With independent merchants accounting for 60% of the sales conducted on its marketplaces, there's an army of sellers that are more than willing to pay up to advertise their wares to Amazon's massive customer base. Amazon's ad tools are generating attractive returns on investment for marketers, partially because people tend to go to its sites with the express purpose of buying something.
Amazon's AI technology is further boosting the effectiveness of its ad platform. By providing cutting-edge tech that helps merchants better target potential customers at reduced cost, the company is giving its partners the tools they need to succeed while expanding its own business alongside them.
