Amazon Presents Strong Growth Potential Amid AI Expansion

The “Magnificent Seven” comprises seven leading American technology firms recognized for their significant market influence. This term, introduced by Bank of America analyst Michael Hartnett in 2023, highlights their exceptional performance compared to the overall stock market. As of May 2025, these companies represent over a third of the S&P 500 index’s total market capitalization—almost triple their 12% share in 2015—illustrating their dominant role, particularly in the booming AI sector.

Amazon’s Resilient Market Position and Impressive Returns

Amazon (NASDAQ: AMZN), currently the fourth-largest company by market cap, has significantly outperformed the S&P 500 index since the start of 2023, posting a remarkable return of 145%, compared to the index’s 55% increase. This strong performance can be attributed to Amazon’s strategic focus on integrating AI technologies across its services.

Amazon’s E-commerce Growth Powered by AI

The e-commerce sector is a major revenue source for Amazon, generating $94 billion in the first quarter, which accounts for 60% of its overall revenue. The global e-commerce market is projected to grow at an annual rate of 19% until the end of the decade, with a staggering revenue forecast of $73.5 trillion. To capitalize on this growth, Amazon is incorporating AI tools that analyze customer behavior, predict buying trends, and manage inventory effectively.

Innovations like Project Amelia, a generative AI assistant, enable sellers to gain valuable business insights through simple prompts. Furthermore, AI aids customers in discovering relevant products via the new Interests feature. These initiatives are expected to enhance Amazon’s e-commerce revenue significantly over time.

Growth in Cloud Computing Segment with AI Integration

Amazon Web Services (AWS), the company’s cloud computing segment, is outpacing its overall growth. AWS revenue rose by 17% year-over-year in the first quarter, contributing $29 billion in revenue—placing it on an annual run rate exceeding $100 billion. Management anticipates that AWS could eventually grow beyond its previous estimates, driven by burgeoning demand for cloud-based AI services.

According to Grand View Research, this demand may unlock a revenue opportunity of nearly $650 billion for Amazon by 2030. AWS allows its clients to build and deploy AI applications powered by advanced large language models and proprietary processors, providing enhanced performance at competitive prices.

Amazon’s AI-driven cloud segment has already achieved a multibillion-dollar annual revenue run rate, showing triple-digit growth year over year. With a 30% share in the global cloud infrastructure market, AWS is poised to maximize its opportunities in the rapidly evolving AI landscape.

Future Earnings Growth and Capital Investment Plans

Amazon aims to further boost its earnings by increasing capital expenditures (capex) to $100 billion in 2025—a 20% rise from the previous year. A significant portion of this investment will focus on upgrading infrastructure and developing custom AI chips to meet growing demand for cloud-based AI services.

Analysts predict a 12% increase in Amazon’s earnings per share this year, reaching $6.20, with even stronger growth anticipated in 2026 and 2027. The extensive market opportunities in e-commerce and cloud computing will likely sustain Amazon’s robust earnings growth in the long term.

AMZN EPS Estimates for Next Fiscal Year data by YCharts

Considering its attractive valuation at 32 times forward earnings, now may be an opportune time to invest in Amazon, given its strong potential for sustained growth in both e-commerce and cloud computing sectors.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of Motley Fool Money. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Bank of America. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.