Tech giant Amazon (AMZN 2.57%) is getting some added attention from the markets recently. However, it's not directly related to Amazon's core e-commerce and cloud businesses. Amazon's latest updates help lay the foundation for future advertising and artificial intelligence (AI) growth.
The announced changes suggest the company's forward-thinking culture remains intact. Given the stock's recent price dip related to overall market volatility, this could be an excellent opportunity to buy in at a small discount.
Here is why Amazon stock is a compelling investment idea today.
Amazon's ad business flexes its muscles
Amazon is already a force in the advertising business. The company's ad segment generated $20.2 billion in revenue through the first half of 2023, a nearly 22% increase year over year, putting it on pace to pull in roughly $40 billion in ad revenue this year. Alphabet's YouTube segment, the world's second-most trafficked website, generates roughly $30 billion in annual ad revenue.
Amazon announced this month that it plans to tie ads into its Prime Video service. It will begin showing ads to customers early next year unless they pay an extra $2.99 monthly for the service to remove them. Prime's subscriber base is massive, estimated at over 200 million accounts globally. This could potentially add billions of dollars in ad revenue to the business.
It shows that Amazon continues to lean into the entertainment industry, leveraging its Prime subscriber base. It's paying $1 billion annually to exclusively stream Thursday Night Football through 2033.
Investing in an AI start-up
Amazon announced this week that it's investing up to $4 billion in AI start-up Anthropic, a competitor to OpenAI, which developed ChatGPT. It's a clear step toward competing in generative artificial intelligence, an industry that could grow beyond $200 billion in annual sales by the decade's end. Anthropic also operates an AI-powered chatbot similar to ChatGPT.
Anthropic plans to build an ultra-powerful model that is potentially 10 times more powerful than current AI. Like Microsoft's deal with OpenAI, Amazon's tie-up with Anthropic locks it in as a strategic partner. It will use Amazon's AWS cloud platform for its workloads and Trainium and Inferentia chips for training.
The partnership puts Amazon more firmly on the competitive landscape for AI growth and potentially gives it an inside track to a potential acquisition down the road if it decides.
Why the stock is a great buy today
It's worth noting that these developments won't directly affect Amazon's business today. Still, monitoring these developments is crucial because they could create growth over the coming years. That said, it's still a worthwhile stock to consider buying today.
Over the past two years, Amazon has fought through inflation and massive investments into its fulfillment network to return operating cash flow to near-record levels. Despite this, the stock trades near the low end of its valuation range over the past decade.
AMZN price to CFO per share (TTM) data by YCharts. CFO = cash from operations; TTM = trailing 12 months.
E-commerce sales, which are still just 15% of all retail sales in the U.S., should continue trending higher. So should Amazon's AWS cloud business, which remains the leading public cloud platform in an industry estimated to grow beyond $1.5 trillion globally by 2030.
The company has multiple irons in the fire, and they're all red hot. Investors willing to stomach the volatility of growth stocks like Amazon should consider scooping up shares today and holding them for the potential growth opportunities available over the next decade.
