Artificial intelligence (AI) is the hottest trend in the stock market, propelling the Nasdaq Composite up by over 40% in the past year. Megacap tech giants like the “Magnificent Seven” have significantly boosted the S&P 500 to new record highs, with companies like Microsoft and Nvidia leading the pack.
While Microsoft and Nvidia have garnered substantial media attention for their AI investments, e-commerce and cloud computing powerhouse Amazon (NASDAQ: AMZN) seems to be flying under the radar despite its notable strides in the AI landscape.
With a focus on 2024 potential, let’s explore why Amazon could be a lucrative investment choice, especially when considering its position in the AI market.
Historical Insights Into the Nasdaq’s Trajectory
Over its 50-year history, the Nasdaq Composite has only posted negative annual returns 14 times. Notably, in the past two decades, the Nasdaq experienced significant declines of over 30% in only three instances: 2002, 2008, and 2022.
Following the downturns in 2002 and 2008, the Nasdaq bounced back vigorously in the subsequent years, showcasing an average annual return of 16% from 2003 to 2007 and a remarkable 30% between 2009 and 2010.
Despite the disclaimer that past performance doesn’t dictate future results, the Nasdaq’s resilience, coupled with the AI frenzy, paints a promising picture for the tech-heavy index in 2024.
Image source: Getty Images.
Uncovering Amazon’s AI Ventures
Amazon’s recent multibillion-dollar investment in Anthropic, an AI competitor to OpenAI, signals the tech giant’s ambitious foray into enhancing its cloud business capabilities. With businesses worldwide tightening their budgets, Amazon’s cloud segment faced a slowdown, impacting its overall financial performance.
By leveraging the partnership with Anthropic, Amazon aims to revitalize its cloud business by integrating Amazon Web Services (AWS) and proprietary semiconductor chips for future generative AI models. This strategic move could potentially boost demand for AWS, positioning Amazon as a formidable player in the AI-driven cloud services landscape.
As Microsoft harnesses ChatGPT for OS innovation, Amazon has a parallel opportunity to propel AWS growth through AI-powered applications.
Valuation Insights: Amazon’s Appealing Position
AMZN PS Ratio data by YCharts
Comparing Amazon’s price-to-sales (P/S) ratio of 3.1 with the Magnificent Seven cohort, Amazon emerges as the most attractively valued stock among its peers. The premium valuations of Nvidia and Microsoft can be attributed to their demonstrated success in AI integration within their businesses.
Amazon’s undervaluation relative to its peers hints at a compelling investment opportunity, especially as the company intensifies its focus on AI technologies.