Amazon’s investments in artificial intelligence (AI) appear underappreciated by Wall Street, but the company’s growth can’t be ignored for much longer.
There are six publicly traded companies with trillion-dollar valuations. With a market cap of roughly $1.9 trillion, Amazon (AMZN 0.08%) is the fifth-most-valuable company in the world, trailing peers including Apple, Microsoft, Nvidia, and Alphabet.
For now, Apple, Microsoft, and Nvidia are steadily in the lead as each boasts a market cap in excess of $3 trillion. However, I think Amazon has the best chance of becoming Wall Street’s first $5 trillion stock.
Below, I’ll break down how artificial intelligence (AI) represents a lucrative growth opportunity for all of big tech and why I think Amazon will emerge as the king of the tech realm in the long run.
Amazon’s next big catalyst
For the last couple of years, investors have been bombarded with information, most of it vague, about AI and how large corporations plan to integrate the technology into their businesses.
Promises of increased workplace productivity or enhanced data analytics don’t mean much unless you can prove that these technology upgrades are worth the money. The most obvious way to do that is through numbers.
Since the AI revolution took off, Amazon has invested billions of dollars in new products and services. Specifically, the company invested $4 billion in a competitor to OpenAI, Anthropic. Additionally, the company has poured billions of dollars of capital expenditures (capex) into data center infrastructure.
Let’s take a look at how these investments are paying off and what that could spell for Amazon’s future.
AMZN Capital Expenditures (Quarterly) data by YCharts
Revenue growth is great, but rising profits are even better
Despite the exciting prospects of AI, Amazon is facing other financial challenges. Macroeconomic forces, including stubborn inflation and rising interest rates, have stalled Amazon’s growth in core segments such as e-commerce and subscription services over the last couple of years. Thankfully, changes to monetary policy, such as reduced interest rates, should help ignite some renewed growth in these operating segments.
Where I think investors are completely overlooking Amazon is in its cloud computing segment — Amazon Web Services (AWS). Since the company forged a relationship with Anthropic, revenue and profits from AWS have materially accelerated.
This is important because the majority of Amazon’s operating income stems from AWS. As the overall profile surrounding AWS improves, so does Amazon’s entire business.
To put this into perspective, Amazon’s trailing-12-month free cash flow grew 572% year over year to $53 billion as of June 30. At the end of the second quarter, Amazon held $89 billion in cash and marketable securities on its balance sheet.
Image source: Getty Images.
Why I think Amazon could be the long-run winner
It’s obvious that Amazon is performing well, but why do I think its growth prospects are far more robust than those of its peers?
For now, Nvidia is the leader of the graphics processing unit (GPU) and data center industries. However, rising competition from AMD, Intel, and many of Nvidia’s own customers leads me to question how much more fuel Nvidia’s rocket really has.
Apple is perhaps the biggest enigma in the AI landscape among the big tech companies. The company has been slow to dive into the AI arena, and it’s too early to tell if its strategy around Apple Intelligence (the marketing moniker for Apple’s AI tools) will pay off.
Like Nvidia, Microsoft has been hailed as an early winner in AI adoption. This is largely thanks to the company’s multibillion-dollar investments in OpenAI — the developer of ChatGPT — and the swift integration of AI across the Windows operating system. While I think Microsoft will continue to grow at an impressive pace, its valuation has arguably already priced in a lot of upside — especially considering Microsoft competes with Amazon and Alphabet in the cloud computing world.
And although Alphabet has made an incredible footprint on the internet space thanks to its Google and YouTube platforms, rising competition in the advertising space has taken a toll on Alphabet’s core source of revenue. While Meta Platforms and TikTok are obvious threats, I think Amazon’s advertising business is monumentally discounted and could further hinder Alphabet’s growth.
Given the above explanations, I think each of Amazon’s major cohorts could face some serious growth deceleration in the coming years. Alternatively, Amazon’s diversified ecosystem of e-commerce, subscriptions, grocery delivery, streaming, cloud computing, and more provide a level of immunity to competition that is hard to match.
I think Amazon’s revenue and profits will continue to grow for years. As profitability and earnings rise, I think Wall Street will eventually begin valuing Amazon over its peers.
For these reasons, I think the company’s valuation multiples will begin to expand dramatically — leading to rising share prices and ultimately a market cap value well in excess of other big tech companies’.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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 has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
