Amazon (NASDAQ:AMZN) is not what you think of when you think of artificial intelligence (AI) infrastructure. Most people associate Amazon with its commerce site and delivery services, which is a fair assessment. This part of the business generates the majority of Amazon’s revenue.
However, Amazon’s cloud computing business, Amazon Web Services (AWS), generates most of the profits. This makes Amazon an under-the-radar AI infrastructure play, and the stock looks set to skyrocket in the coming months as more people realize how impressive this segment of Amazon’s business is.
Will AI create the world’s first billionaire? Our team just published a report on a little-known company called “Indispensable Monopoly” that provides critical technology that both Nvidia and Intel need. Continue “
Although Amazon has rallied in recent weeks, it remains a solid buy as the outlook for the business is strong and its valuation remains reasonable.
In the fourth quarter, AWS accounted for 50% of Amazon’s operating profits even though it only accounted for 17% of total sales. The fourth quarter is by far Amazon’s most profitable quarter for its commercial business, and most of the year looks like the third quarter, where AWS accounted for 66% of Amazon’s operating profits. Despite its much smaller size, AWS is a huge profit generator and looks like it will continue to accelerate that way.
AWS posted 24% revenue growth during the fourth quarter, its best in more than three years. It’s doing so well that Amazon decided to spend a staggering $200 billion on capital expenditures to dramatically increase its footprint. While some question that decision, Amazon noted in its letter to shareholders that the faster AWS grows, the more it will spend. They noted that while the expense is high, the long-term benefit to free cash flow is impressive. They also noted that they are not blindly spending $200 billion; They have clients committed to using the space once it becomes available.
That kind of language practically conveys that we will see accelerated growth rates from AWS. Since AWS accounts for the majority of Amazon’s profits, this will also translate into rapid profit growth. It’s a double whammy that investors love to see and could send stocks soaring. However, over the past month, Amazon shares are up almost 20%. While it would have been better to invest a few weeks ago, the reality is that Amazon’s future is bright and the price is not expensively priced.
