There's little question that Nvidia has been the early winner in the race to adopt artificial intelligence (AI). The company's graphics processing units (GPUs) have proven remarkably adept at AI applications, thanks in part to their ability to conduct a multitude of mathematical computations simultaneously, thereby speeding the processing of AI models.
The demand for these chips has spread like wildfire, resulting in triple-digit year-over-year profit and revenue growth for Nvidia over the past three quarters. As a result, its shares have gained an incredible 500% since early 2023 (as of this writing).
Despite its early lead, there are those who believe that other AI stocks will have more staying power. One of the top picks among analysts is Amazon (AMZN +5.61%), and there's evidence that suggests the company will benefit from the growing adoption of generative AI for years to come.
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A growing chorus on Wall Street
Some of the biggest names on Wall Street have chosen Amazon as the best AI stock to own in the coming year.
- JPMorgan analyst Doug Anmuth chose Amazon as his "best idea" for 2024, citing accelerating growth at Amazon Web Services (AWS) and the increasing contribution of generative AI.
- Piper Sandler analyst Thomas Champion also joined the fray, calling out Amazon as his top pick for 2024, crediting strong momentum in cloud computing driven by AI.
- Citi analyst Ronald Josey also called Amazon his top pick, citing "cost reductions and optimizations."
- Analysts at Bernstein named Amazon their "Best Idea" for 2024, pointing to fixed-cost leverage and margin strength.
- TD Cowen analyst John Blackledge chose Amazon as his top large-cap internet pick, singling out the potential for AWS to reaccelerate its revenue growth thanks to AI.
- Roth MKM analyst Rohit Kulkarni called Amazon its "Top Mega Cap pick for 2024," suggesting it's the only megacap he expects to deliver "accelerating revenues and expanding operating margins" this year.
With so many analysts flocking to Amazon, let's look at how AI could move the needle for the company over the coming year.
A long track record
Amazon has a long and distinguished history of developing AI algorithms to advance its business interests. When consumers are searching for products on Amazon's website, AI is working behind the scenes to surface the items that best match the search terms. The same goes for those looking for movies on Amazon Prime Video or songs on Prime Music. AI also manages the placement of targeted adverting on the company's e-commerce website.
AI has also helped Amazon climb to the top of the hill in e-commerce. AI-fueled software keeps track of inventory at its warehouses and distribution centers and adjusts levels to keep up with changing demand. AI-powered robots ferry products around the warehouse for picking and packing once they've been ordered. Amazon's in-house algorithms also schedule delivery routes to squeeze the maximum number of deliveries out of each gallon of fuel.
Yet this laundry list of AI enhancements is just the beginning for Amazon, which is ramping up its capabilities and already embracing generative AI.
NASDAQ: AMZN
Key Data Points
Head in the clouds
Improving its business operations aside, the biggest opportunity for Amazon is acting as a provider of AI services to its cloud infrastructure customers. And the company has already hit the ground running.
AWS Bedrock offers a suite of all the most common AI models, while also helping customers build customized AI apps. It also offers access to Nvidia's flagship AI chips -- the H200 Tensor Core GPUs -- and Amazon's own Inferentia and Trainium AI chips, which the company says gives customers more bang for their buck. In doing so, Amazon provides AI processing to fit every budget.
Amazon has also developed a number of generative AI options that will benefit customers. The company recently launched Amazon Q for enterprises, a digital assistant powered by generative AI that helps streamline and automate mundane and time-consuming tasks, helping users be more productive. Amazon also introduced a tool that uses AI to develop images for advertisers, and another that aids consumers in their search for products.
AWS has long been the frontrunner in cloud infrastructure services, and while its growth has slowed, many analysts believe generative AI will provide the jump-start it needs to reinvigorate its growth. Several months ago, Needham analyst Laura Martin dropped a bombshell. She suggested that providing cloud AI services to AWS customers will prove so lucrative, it will vault Amazon's market cap above $3 trillion, or 63% above its current level. The catalyst? The large language models (LLMs) that underlie its AI efforts, according to Martin: "Not only do [cloud infrastructure leaders] LLMs have the lowest cost structures and first-mover advantages, but their average lifetime value per cloud customer is about to skyrocket owing to the stickiness of apps built on their LLMs."
This suggests there's still plenty of upside for Amazon stock, all thanks to generative AI.
All that opportunity for a bargain-basement price
Despite the wealth of opportunity ahead, Amazon stock is still selling for a song, at just 2 times next year's sales.
Given the ongoing rebounds in online retail and digital adverting, the vast generative AI opportunity, and Amazon's bargain-basement price, it's easy to see why Amazon is a top AI pick for 2024.
