Amazon (AMZN 0.08%) is undoubtedly one of the most diversified and expansive big-tech companies. The business is strong on many fronts, too. Sales grew 10% in the first quarter, excluding currency fluctuations, including a 17% jump in revenue from the Amazon Web Services (AWS) cloud services platform.
Trailing-12-month operating income was over 50% higher year over year as of the first quarter. By those metrics and more, it would seem Amazon's business is firing on all cylinders.
Yet the stock is down about 3% year to date as of this writing. Investors might want to take advantage of that since there are several reasons the artificial intelligence (AI) boom will help Amazon extend its growth businesses for years to come.
Image source: Amazon.
Amazon offers investors diversity and growth
Adjacent to its online retail empire, Amazon has Prime and other subscription services and related advertising on the platform. Its studios add content to the Prime streaming service. Its logistics segment has become a vast streamlined delivery operation, and AWS is a leading provider of on-demand cloud computing platforms. It has also started testing its Zoox self-driving service in six locations.
The company says its new Amazon Nova foundation model is growing rapidly, too. Nova can process text, images, and videos as prompts, helping customers use generative AI applications in various ways to make their own businesses more efficient and profitable.
The company also has its own Trainium2 advanced AI accelerator chips and architecture that make it easier for AWS customers to train models. Amazon also just launched its first Project Kuiper satellites that it hopes will provide broadband access to hundreds of millions without access today.
AI is helping Amazon streamline its own business
Amazon isn't just generating revenue and profit from AI. It's using it to streamline the company itself. The table below shows how revenue per employee has been steadily increasing in recent years.
| Year | 2024 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|---|
| Revenue per employee (in thousands) | $414 | $375 | $326 | $323 | $368 |
Data source: YCharts. Table by author.
That's certainly nice for a shareholder to see. But there's another important financial metric to which investors may not be paying enough attention. Or perhaps they are, but are not interpreting it correctly.
Cash flow is a tailwind, not a concern
That metric is free cash flow (FCF), which has declined by nearly 50% year over year when measured on a trailing-12-month (TTM) basis. The fact that FCF has declined, or even been negative in some quarterly periods, shouldn't be a concern for investors, though. Investments in property and equipment impact FCF. Those investments are going to drive future growth.
Recent examples of that capital spending include plans to invest over $5 billion in Taiwan for AWS to offer more cloud infrastructure in the region with a new data center construction project. Amazon also said it will invest $20 billion in Pennsylvania to expand cloud computing infrastructure and advance AI innovation.
That AWS investment will expand its AI infrastructure with multiple campuses. As part of this project, the company expanded an agreement with a power producer to purchase power directly from a Pennsylvania nuclear plant that will support the data centers without affecting local power needs.
The declining FCF might have spooked some investors in recent months. But investors who see what current investments could do for FCF should take this year's stock price decline as a gift. It has led to price-to-sales (P/S) and price-to-earnings (P/E) ratios that are both below their averages over the past year.
That makes now a good time to buy Amazon stock, because its AI investments can help it turn around from the year-to-date drop and be a surprising winner in 2025.
