The Nasdaq Composite (^IXIC 0.13%) is making its way back up after falling into correction territory, and as of Monday's close, it's down almost 6% this year. That's an average of about 2,500 stocks, so some are doing much better, and some are doing much worse.
Amazon (AMZN 1.40%) is about 16% off of its highs even though it reported a fabulous performance in the 2024 fourth quarter, and it's an incredible opportunity to buy shares on the dip. Here's why.
Artificial intelligence (AI) is just getting started
Artificial intelligence (AI) is opening up new avenues of growth for many companies, including Amazon. Amazon has used AI in its business for decades, but the classic type, which gathers and sorts data. The company used it to determine the best delivery routes for shipments, what merchandise to carry, and what products to recommend to customers, among other things.
What's new about AI over the past few years is that it's becoming generative, which means it can take the data gathering a step further and generate content and other creative output. There are the "inference" and "reasoning" steps that take it to the next level.
Amazon offers a huge assortment of services for its Amazon Web Services (AWS) cloud computing clients to develop or use foundation models (FMs) and bring generative AI into their platforms.
NASDAQ: AMZN
Key Data Points
It partners with Nvidia to offer AWS clients the capabilities to create their own FMs from the ground up for the highest levels of customization, using their own data. It offers more cost savings when clients use Amazon Bedrock, which uses Amazon's FM. It offers a large selection of FMs for clients to train on, and it recently launched its own FM, called Nova. It also offers many tools for clients, such as SageMaker, which is a platform that unifies AI tools like machine learning and analytics, and Amazon Q, an AI assistant that can be prompted to take care of any number of actions.
Management is excited about the opportunities in AI, seeing it as a once-in-a-decade development that has incredible long-term potential. CEO Andy Jassy envisions generative AI applications as becoming an essential element of any app being built going forward, and he said it's the biggest opportunity since the cloud, and "probably the biggest technology shift and opportunity in business since the internet."
I would also note that what makes Amazon even more compelling is that this isn't its only business, and at this point, it's not even its biggest. If AI doesn't end up taking off and changing the world, like most people are expecting today, Amazon has plenty to fall back on.
E-commerce is still growing
E-commerce is still Amazon's main and largest business, and it's still growing. The company constantly upgrades its e-commerce platform with new products and faster delivery times, and it's focusing on improving its inbound channels to make sure it has merchandise throughout its distribution network to get deliveries out faster.
Amazon increasingly needs to compete with companies like Walmart and Costco Wholesale that have broad physical store chains that act as an instant, countrywide distribution network. Since Amazon doesn't have that, it's relying on its regional distribution centers for speed. Since switching to that strategy, Amazon has increased the areas where it can deliver within 24 hours, and that climbed to 140 metro areas in the fourth quarter, 40% more year over year.
The company is also improving its AI and robotics capabilities in this area to improve speed and reduce costs, and it recently opened a new fulfillment facility that's already demonstrating a 25% reduction in fulfillment processing time and is expected to create 25% in cost savings.
Amazon stock is priced to buy
Amazon is growing in many areas, even those beyond AI and e-commerce. It's no slouch in advertising and streaming. Advertising slipped to the second-highest growth segment behind AWS in the fourth quarter, but it was still robust at 18% year over year.
The company is bringing ads and streaming together with Prime video ads, staying competitive with Netflix and Walt Disney's ad-supported tiers. Amazon offers an unbeatable package for third-party sellers, who are getting exposure to their target customers with pinpointed ad campaigns and Amazon's generative AI tools.
At recent prices, Amazon stock trades at a forward one-year P/E ratio of roughly 30, which is a bargain for a stock with as much opportunity as Amazon.
There's a long growth runway ahead, and at this price, Amazon is a stock you can buy low and hold forever.
