Investors are growing increasingly optimistic about Amazon.com Inc.\u2019s position in artificial intelligence, lighting a fire under the stock and sending the company\u2019s market capitalization soaring toward the rarefied $3 trillion level.<\/p>\n
\u201cWe have a lot of confidence that Amazon\u2019s AI strategy is working, and that it will continue to pay dividends in the form of strong growth over the coming years,\u201d said Stephen Lee, founding principal at Logan Capital Management, which owns Amazon shares. <\/p>\n
The stock has been on a tear since bottoming on March 27, with its 36% gain in that span making it the fourth-largest point contributor to the S&P 500 Index, accounting for 7.4% of the benchmark\u2019s 17% advance through Wednesday\u2019s close, according to data compiled by Bloomberg. Amazon\u2019s 27% leap in April marked its best month since 2007. <\/p>\n
The cloud-computing and e-commerce giant has a market value of $2.9 trillion after adding $432 billion this year. If the rally goes a bit further, it will join Nvidia Corp., Alphabet Inc., Apple Inc. and Microsoft Corp. in the exclusive group of companies that are worth more than $3 trillion.<\/p>\n
Amazon\u2019s resurgence comes after an extended period of underperformance. The stock is up 65% over the past five years, well below the 121% jump by the tech-heavy Nasdaq 100 Index in that time and even falling short of the S&P 500\u2019s 79% gain.<\/p>\n
The rebound reflects investor\u2019s rising confidence that Amazon has multiple paths to succeed with AI. Its latest results showed the fastest quarterly sales growth for its Amazon Web Services cloud-computing business in more than three years, a sign that AI demand continues to be robust. In addition, Amazon said it has \u201cover $225 billion in revenue commitments\u201d for its Trainium custom AI chips.<\/p>\n
\u201cAWS is showing great growth, and the demand for its bespoke chips is not only positive for revenue but suggests it could gain some independence on its compute costs, which would represent a real price advantage,\u201d Lee said. <\/p>\n
These developments are helping to justify the heavy spending Amazon is continuing to make in developing AI, which is important as investors sell shares of big AI spenders with more questionable outcomes, like Microsoft and Meta Platforms Inc. <\/p>\n
\u2018Compelling Combination\u2019<\/p>\n
\u201cAll of Amazon\u2019s businesses feed into each other, and being good at AI will not only help with AWS, but mean massive advantages for logistics and ad targeting at its e-commerce business,\u201d Lee said. \u201cIt should be a significant winner of both the AI infrastructure buildout, as well as a significant winner of AI usage, and that\u2019s a very compelling combination.\u201d<\/p>\n
Amazon\u2019s AI investments are working out too. One of its biggest positions is in Anthropic PBC, which is reportedly in talks to raise new capital at a valuation of more than $900 billion. And in February, it agreed to invest $50 billion in OpenAI alongside a commitment for the ChatGPT maker to spend $100 billion on AWS over the next eight years.<\/p>\n
As a result of all this, Wall Street is growing more confident about Amazon. Of the 83 analysts tracked by Bloomberg who follow the company, 79 have buy ratings and none have sells. That\u2019s the highest percentage of buys among megacap stocks. The average price target of $313 anticipates a 16% gain over the next 12 months.<\/p>\n
The consensus estimate for Amazon\u2019s 2026 earnings per share has risen by 14% over the past month, according to data compiled by Bloomberg, and its revenue projection has also moved higher. The increases are making the shares look relatively cheap at less than 25 times estimated earnings, a significant discount to their 10-year average of 46. In late March, the multiple fell to its lowest since late 2008.<\/p>\n
However, not everyone is sold on the stock\u2019s prospects from here, especially as long as Amazon continues to spend aggressively on AI. The company has the highest 2026 capex projection in the S&P 500, nearing $200 billion. And that figure is expected to balloon to $226 billion in 2027. <\/p>\n
\u201cThere are still huge question marks around what return it will get on all this AI spending,\u201d said Tom Graff, chief investment officer at Facet. \u201cThere could be an upside cap on the multiple so long as the capex story continues, because it will no longer have the same margins it enjoyed when it as a big cash-flow generator.\u201d<\/p>\n
Although Facet owns Amazon shares, Graff described himself as skeptical and said the stock has an underweight rating in the firm\u2019s portfolios.<\/p>\n
\u201cUltimately I see more scenarios where it underperforms rather than outperforms,\u201d he said. \u201cThere is a lot that would have to go right, and in a world where I\u2019m trying to balance risk and reward, I just see more risk here.\u201d<\/p>\n
Vlastelica writes for Bloomberg.<\/p>\n","protected":false},"excerpt":{"rendered":"Investors are growing increasingly optimistic about Amazon.com Inc.\u2019s position in artificial intelligence, lighting a fire under the stock…\n","protected":false},"author":2,"featured_media":39036,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[24,321,25,2478,309,532,6398,23164,1304,24081,24080,5214,14507,24079,1016,573],"class_list":["post-39035","post","type-post","status-publish","format-standard","has-post-thumbnail","category-ai","tag-ai","tag-amazon","tag-artificial-intelligence","tag-bloomberg","tag-business","tag-company","tag-confidence","tag-gain","tag-investor","tag-market-value-charge","tag-multiple-path","tag-share","tag-sp","tag-stephen-lee","tag-stock","tag-year"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts\/39035","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/comments?post=39035"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/posts\/39035\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/media\/39036"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/media?parent=39035"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/categories?post=39035"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ai\/wp-json\/wp\/v2\/tags?post=39035"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}