If you have an extra $140 or so hanging around, you might want to consider buying a share of Amazon (AMZN 2.29%) stock instead of spending it on another gadget from Amazon. Better yet, if you have some more than that, you might want to buy a few shares, because Amazon just gave a quarterly update showing some serious progress.
As with any investment, you want to buy for the future, not the past. And there's so much good stuff going on at Amazon. Let's check out which segment is the one to watch right now.
Is it e-commerce?
E-commerce is Amazon's bread and butter, bringing in the high sales that support its other businesses. It's still maintaining its unreachable lead, with about 38% of all U.S. e-commerce, despite the proliferation of e-commerce retailers. This is due to serious investments by Amazon in all parts of its business, including delivery speed, artificial intelligence, and third-party funnels.
Over the past few quarters, CEO Andy Jassy has told investors about how Amazon is improving its delivery network. It made a fundamental change to its systems, moving from a national network to a regional one. That means more products are already in place to get to customers faster, while there are ample movement channels within the network to get regionally out-of-stock products where they need to go.
That engenders loyalty from Prime members, who can't get essential products as quickly from any competitor, and leads to higher sales. And Jassy said that Amazon is still tinkering with the network and has plenty of ideas to make it work even better.
It's strengthening its artificial intelligence (AI) capabilities in e-commerce, and its exposure to more customers than almost any other e-commerce company gives Amazon more data and better results. This should also lead to higher sales, since it can match customer preferences better than others. It's also using AI to plan inventory, which should improve overall margins.
There's a lot to watch as Amazon continues to upgrade its e-commerce and seeks to maintain its unmatched lead.
Is it AWS?
After a deceleration in sales growth, Amazon Web Services (AWS) remained flat sequentially at 12% growth in Q3. But Jassy said there were indications that the moderation in spending from its clients that led to the slowdown is starting to turn around. He said there were some pretty large deals it signed that won't show up until the fourth quarter, but that "the collection of which is higher than our total reported deal volume for all of Q3." That gives investors something to get excited about already.
He also updated shareholders with progress on the AI front, explaining that there are three layers of AI capabilities that provide new powers for AWS users. These include features like creating AI agents to take care of responsibilities and complete customization for different company needs.
Jassy said the main demand Amazon is hearing from customers is to have a system that recognizes unique coding, and AWS is delivering that through its newly launched Code Whisperer program.
Amazon is seeing lots of traction with clients using its generative AI technology, with companies like Merck, Booking Holdings, and Adidas already using it build their own generative AI apps. The opportunities here are massive, since generative AI is still in its infancy, and Amazon has emerged as a leader.
Is it advertising?
Advertising was the fastest-growing segment in the third quarter, increasing 25% year over year. As advertisers have limited their budgets due to inflation, Amazon remains one of the top mediums for reaching customers when they're already looking to shop.
Here, too, Amazon is flexing its AI muscle. It's improving its machine learning models to improve how well it matches ads to customer searches, and that has resulted in better profitability. It also launched a generative AI tool where advertisers can upload a photo of a product and a description, and the model will generate lifestyle images for advertisers to use.
This is a wide open business with plenty of upside, and it easily complements the e-commerce business.
That's why it's a trick question
Amazon demonstrated progress across its business segments, and they're all worth watching.
One thing I would point out is that there was one segment that posted a decline. It was a small decline, only 2%, and it's not a well-watched category. However, it has been Amazon's highest-growing category for several quarters, to the point that I recently called it Amazon's secret weapon.
This category of "other" includes things like co-branded credit cards, healthcare, and more. Management didn't address it, but did give a positive update on healthcare. So while it's small piece if the pie, I'm curious as to what's happening there, and I would recommend keeping an eye on it.
Otherwise, this report illustrated why Amazon remains a tech leader, and why you can still benefit from its ongoing growth story.
