Amazon (AMZN 1.61%) has been in a bit of a lull lately. The stock is up only about 4% over the past six months. Wall Street analysts have noticed and believe Amazon is a bargain sitting in plain sight. Out of 74 analyst ratings compiled by MarketWatch, a whopping 60 of them rate Amazon stock as a buy today.
What has analysts so excited about Amazon? The e-commerce and cloud computing leader has numerous opportunities in artificial intelligence (AI) ahead. Here is why investors may want to buy this AI stock before its next breakout.
Image source: Amazon.
Leaning into the AI race
Companies are racing to lay the foundation for global AI adoption. That means building vast data centers equipped to handle AI's computing needs. This is already in Amazon's wheelhouse, as it's the world's leading cloud services company. Amazon is weaving itself into AI's infrastructure layer in multiple ways:
- Cloud services to run AI software via AWS (Amazon Web Services)
- Partnership with, and investment in, AI developer Anthropic
- Custom-built Trainium AI chips
The goal? Make Amazon a mission-critical component of building and deploying AI for enterprises and developers. On the consumer side, it can integrate AI features into its Prime services. For instance, it just launched an AI agent for its telehealth service.
AI could revolutionize Amazon's business on the back end
But Amazon's AI upside goes beyond sales and growth; it's also a potential game changer internally. Amazon employs hundreds of thousands of people, many of whom work in the distribution centers to fulfill e-commerce orders or deliver packages.
NASDAQ: AMZN
Key Data Points
Amazon is developing automated systems and humanoid robots that could replace human workers over the coming years. Any meaningful reduction in Amazon's headcount would drastically improve its profit margins. It's hard to overstate how that could boost Amazon's e-commerce business, which operates on thin margins to offer the lowest prices to shoppers and edge out competitors.
The stock's valuation signals upside ahead
Amazon's AI opportunities won't play out overnight, but Wall Street analysts estimate the company can grow earnings by nearly 18% annually over the long term. The stock trades at a price-to-earnings ratio of just under 34 today, which is very reasonable given the anticipated growth.
As long as Amazon continues to perform, and it seems likely given its massive size, competitive advantages, and aggressive investments into these AI opportunities, the stock appears likely to continue doing well over the coming years. It looks like Wall Street analysts overwhelmingly agree with that.
