Amazon (AMZN +3.23%) is performing well this year. The company's first-quarter results were strong, with accelerating demand for its cloud services and a fast-growing advertising segment. The e-commerce specialist's shares have climbed 19% as a result, easily outpacing the S&P 500's 10% gains. But what if Amazon is just getting started? Several ongoing developments suggest that the company boasts attractive opportunities that could allow it to crush broader equities over the next five years. Read on to find out more.
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The agentic AI tailwind
Amazon has already been a winner in the artificial intelligence (AI) boom, thanks to the many AI-powered services it offers through its cloud division, Amazon Web Services (AWS). But the industry seems to be increasingly shifting toward agentic AI, or systems that go beyond the question-response model of chatbots and can act autonomously toward a goal. Amazon could also capitalize on agentic AI in several ways. As the leading cloud computing company, Amazon can provide the infrastructure necessary to host and operate AI agents. But Amazon also designs chips specifically for AI workloads.
For instance, the company's Graviton CPU (Central Processing Unit) franchise is well-suited to run AI agents. Amazon could purchase third-party CPUs from leading providers, such as Intel and Advanced Micro Devices. In fact, it has already been doing so for years. However, developing its own hardware in-house has several advantages. It notably helps the company cut costs and pass those savings to customers, while allowing it to become an even more vertically integrated cloud computing provider.
That brings us to a recent deal Amazon signed with Snowflake. The cloud-based data specialist committed to spend $6 billion over five years on AWS infrastructure to power AI and Agentic AI workloads, a deal that explicitly includes Graviton processors. The dollar amount itself isn't the point. For a company the size of Amazon, $6 billion over five years isn't really that meaningful. However, this sort of deal highlights the opportunity ahead for Amazon as agentic AI becomes increasingly important.
That's the great news. And it's also worth noting that it isn't the first such agreement the company has signed. In April, Meta Platforms partnered with Amazon to use AWS and Graviton as part of its own agentic AI push.
NASDAQ: AMZN
Key Data Points
Why Amazon stock is a buy
Amazon will provide the infrastructure to host and run agentic AI, making it a great stock to consider in this new AI world order. But the company could also be a consumer of AI agents, which might significantly improve its e-commerce business. Agents could help shoppers find what they need much faster and be tailored to each customer based on needs, preferences, and past shopping habits. All of this could boost engagement across Amazon's e-commerce business while increasing gross merchandise volume and sales. Further, Amazon is seeking to cut costs by using AI-powered robots in its warehouses.
This is particularly important since, although e-commerce remains its largest division by sales, it carries pretty thin margins. Provided Amazon can improve on that front, the company could see much better profits over the next few years. Meanwhile, the company continues to ramp up other businesses -- including advertising, a high-margin opportunity -- and Amazon is finding even newer growth avenues. The company recently launched Amazon Supply Chain Services (ASCS), opening its vast logistics network to other corporations.
It's not hard to see the appeal here. Amazon is one of the top e-commerce players, partly because it offers free, fast shipping on millions of items. That's why other companies might see significant value in this new offering. So, Amazon boasts plenty of growth opportunities: Cloud computing, AI, e-commerce, advertising, and others. It is a leader in every one of those niches, generates plenty of free cash flow to support future investments, and boasts a wide moat from its brand name, switching costs, and the network effect. All these make the stock highly attractive.
