In 2023, Bank of America analyst Michael Hartnett coined the term "Magnificent Seven" to describe a group of powerhouse tech stocks, inspired by the classic 1960s Western film. These companies, among the market's most valuable, are leading the way in artificial intelligence (AI), cloud computing, online gaming, and advanced hardware and software.
Over the past five years, the Magnificent Seven have delivered mind-boggling returns, but 2025 has been more challenging. So far, only Meta Platforms has significantly outperformed the S&P 500 (^GSPC 0.39%) (up 2.4% year to date as of this writing), while others have flat-out struggled.
One standout performer this year is Amazon (AMZN +0.81%), a leader in e-commerce and cloud computing. With its stock outperforming the S&P 500 by a little over 2% year to date, Amazon is proving to be an unstoppable force as it deepens its push into AI.
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Let's explore why this AI pioneer scans as a top buy right now.
The three layers of AI
During Amazon's Feb. 6 earnings call, CEO Andrew Jassy outlined the company's comprehensive AI strategy, revealing approximately 1,000 different generative AI applications either already built or in development. Amazon's approach spans three critical technology layers, each showing significant progress.
Amazon develops proprietary AI chips at its foundation. The recently launched Trainium2 delivers 30% to 40% better price performance than current graphics processing unit (GPU) alternatives, according to the company. Building on this success, Amazon plans to release Trainium3 in late 2025 and has begun defining Trainium4. It is also partnering with chatbot pioneer Anthropic for frontier model development.
In the middle layer, Amazon Bedrock provides foundation models for building AI applications. In Q4 2024, the company introduced its Nova models inside the Bedrock platform, delivering comparable intelligence to leading models at a staggering 75% lower cost than its other offerings. This technological breakthrough has already attracted several major customers like Palantir Technologies, SAP, and Robinhood.
At the application level, Amazon's AI assistant, Q, demonstrates practical value for users. In early implementations, Q generated substantial savings, including $260 million and 4,500 developer years in Java migrations. The company is expanding Q's capabilities to help customers more efficiently migrate existing Windows servers, VMware systems, and mainframe computers to Amazon Web Services (AWS).
Investing heavily in AI
Amazon's 2024 Q4 earnings report demonstrated its massive investment capacity, with capital investments reaching $26.3 billion in the quarter. While this spending spans various business needs, the company has prioritized AI development as a key strategic focus. This aggressive investment strategy is already showing results, with AWS's AI-related revenue growing at a blistering pace and contributing to the division's $115 billion annualized revenue run rate.
NASDAQ: AMZN
Key Data Points
While current growth faces hardware supply and power infrastructure constraints, Amazon expects these limitations to ease in the second half of 2025. As Jassy emphasized during the earnings call, "AI represents, for sure, the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet."
Why Amazon stock is a buy
Amazon stock trades at 35.4 times forward earnings, compared to 24.2 times for the benchmark S&P 500. This premium reflects the company's comprehensive AI strategy and proven execution across multiple layers of the tech value chain. The tech giant offers investors exposure to every critical layer of the AI stack, from custom chips to enterprise applications.
Moreover, Amazon's AI business is already generating a triple-digit annualized revenue growth rate. With supply constraints expected to ease in the second half of 2025, Amazon appears well-positioned for the next wave of AI growth.
For investors seeking AI exposure, Amazon offers proven capability and a substantial capital investment in the technology that should drive significant revenue growth for years to come.
