After a brutal market sell-off in 2022, excitement over artificial intelligence (AI) has helped fuel the market. Nasdaq CompositeLast year, the increase was 43%. The actions of the “Magnificent Seven” — Amazon (NASDAQ:AMZN), Apple, Alphabet, Microsoft, Meta, NvidiaAnd You're here — contributed to much of the market's gains.
Microsoft and Alphabet have launched the AI revolution after spectacular investments in start-ups including OpenAI and Anthropic, developer of ChatGPT.
Amazon doesn't seem to be moving at the same pace as its big tech counterparts when it comes to AI. However, over the past year, the company has quietly made inroads in the field and investors are beginning to understand the company's potential as an AI leader.
Let's take a look at the initiatives Amazon is taking and how AI could unlock its next frontier of growth.
Tea leaves are encouraging
Over the past half-century, the Nasdaq has produced negative annual returns 14 times. But it is interesting to note that there are only two periods where there was more than one consecutive year of decline: 1973-1974 and 2000-2002.
Since 2001, the Nasdaq has experienced three annual declines of 30% or more: in 2002, 2008 and 2022. However, after the stock market crashes of 2002 and 2008, the index soared for consecutive years. The index returned an average of 16% per year from 2003 to 2007, ranging from a 1.4% increase to 50%. And in 2009 and 2010, it increased by an average of 30%, or 44% one year and 17% the following year.
If history repeats itself, the Nasdaq will win this year. Will history repeat itself? Nobody knows.
But even though no one knows what will happen, the general idea is that capital markets are resilient and tend to bounce back relatively quickly. And while Amazon has been impacted on the e-commerce side as consumers have lost confidence, and on the cloud computing side as businesses have curbed spending, Amazon has made a number of strategic moves that should encourage investors, including in terms of optimism. for a strong 2024 for Nasdaq constructions.
Amazon's AI empire
Amazon made headlines following its investment in Anthropic, supported by Alphabet late 2023. While this might have made it seem like Amazon was playing catch-up to Microsoft and Alphabet, the deal contained many important features.
For starters, Anthropic will now use Amazon Web Services (AWS) as its primary cloud provider. Anthropic will also use Amazon's own chips to form the future Generative AI models. This partnership is important for several reasons.
First, AWS's revenue growth has been slowing for several quarters. The addition of Anthropic to the AWS ecosystem should help breathe new life into the cloud computing leader, as it opens the door to a myriad of new AI-driven applications.
Using Amazon's Trainium and Inferentia chips could present a subtle opportunity as the AI semiconductor market is dominated by Nvidia and Advanced microsystems at present.
The chart below illustrates Amazon's price-to-sales (P/S) multiple compared to its Magnificent Seven cohorts. The metric shows how much investors pay relative to a company's revenue.
Amazon Stock Looks Gorgeous
The company's P/S of 3.1 is not only the lowest among its big-tech competitors, but it's also flat compared to its 10-year average.
I think it's both intriguing and puzzling that Amazon's P/S has remained stable given how the company has evolved over the past decade. To me, investors are underestimating the company's partnership with Anthropic and likely view competition from Microsoft and Alphabet as too difficult to fend off. But I think that's wrong.
AWS is going through a new phase of its evolution and AI is at its core. As generative AI becomes a focal point of IT budgets, I believe that sooner or later enterprise software spending will shift from primarily on-premises applications to more cloud-based protocols.
Amazon's development of its own chips as well as its deal with Anthropic are important steps in capitalizing on this trend. While investors may not be witnessing rocket-like growth yet, the company's position in the AI space should not be overlooked. The long-term outlook looks encouraging and now is a tempting opportunity to use dollar-cost averaging to start acquiring some stocks.
Should you invest $1,000 in Amazon right now?
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Spatacco holds positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool has a disclosure policy.
History says the Nasdaq could soar in 2024. Here's an artificial intelligence (AI) stock that looks set to thrive. was originally published by The Motley Fool