Amazon Is Turning Its Cloud Business Into an Artificial Intelligence Growth Engine

Key Points

• Amazon’s cloud unit, AWS, recently reported its fastest growth rate in 11 quarters.

• AWS offers customers a broad range of products and services for just about any AI project.

• 10 stocks we like better than Amazon ›

When you think of Amazon (NASDAQ: AMZN), you may first think of shopping. After all, the company is an e-commerce giant that many of us turn to on a daily basis for groceries, essentials, and even access to books and movies. And this business has helped Amazon become a market powerhouse, delivering billions of dollars in revenue year after year.

But another business is the company’s profit driver, and that’s cloud unit, Amazon Web Services (AWS). It’s the world’s biggest cloud service provider and represents about 65% of Amazon’s total operating income. Now here’s some fantastic news for Amazon shareholders and potential shareholders: The company is turning this cloud business into an artificial intelligence (AI) growth engine. Let’s check out the details.

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Image source: Getty Images.

Why investors are excited about AI

So, first, a bit about AI in general and why it’s become such an exciting investment theme for investors. AI offers companies the potential to gain in efficiency and more easily make new discoveries — and all of this could help earnings roar to higher levels over time. Right now, we’re in the stage of AI infrastructure build-out, with cloud companies expanding data centers so that they can offer more and more compute to customers. Experts, such as Nvidia chief Jensen Huang, suggest this spending could reach into the trillions of dollars by the end of this decade.

Of course, AI already is being applied to real-world problems and situations, and Amazon is a perfect example of this too — the e-commerce business uses AI to streamline fulfillment center operations and help customers on the website. But companies developing and selling AI tools may be set to benefit the most at this stage of the story, and Amazon, thanks to AWS, is one of these players.

AWS already has demonstrated that it’s becoming an AI growth engine for the company as it’s reached a $132 billion annual revenue run rate. And in the recent quarter, AWS revenue climbed 20% year-over-year for its fastest growth rate in 11 quarters.

Now, moving forward, it’s likely this momentum will continue for the following reasons. As the world’s leading cloud player, AWS represents an easy choice for a customer as both parties already have an established relationship. And AWS, as a market giant, offers a vast range of products and services that can serve any AI project: Customers can access high-level AI chips from Nvidia or lower-priced chips designed by AWS, they can take advantage of the fully managed AI platform Amazon Bedrock, or they can rely on AWS for their AI agent building and deployment needs. And these are just a few examples.

Making AI easy

AWS aims to make it easy and efficient for customers to develop AI and put it to work, and so far, the company’s efforts are paying off — we can see that in recent earnings reports, as mentioned above, and through a comment made by chief executive officer Andy Jassy regarding this stage of AI infrastructure expansion.

“You’re going to see us continue to be very aggressive in investing in capacity because we see the demand,” Jassy said during the latest earnings call. “As fast as we’re adding capacity right now, we’re monetizing it.”

What does all of this mean for you as an investor? With so many AI stocks out there, it’s difficult to predict which ones may be the winners of the future. But certain companies, such as Amazon, already have started to generate gains from their AI investments. As we can see through Amazon’s latest earnings reports, AI has spurred a new wave of growth in the cloud business — and the variety of products and services AWS offers, along with its leadership in the cloud market, suggest this momentum may continue.

Amazon is turning its cloud business into an AI growth engine — considering this and the full Amazon picture, the stock looks very reasonably priced today at 32x forward earnings estimates. And that’s why Amazon is a fantastic tech stock to buy and hold as this AI revolution picks up speed.

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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.