Amazon’s AI Innovations Could Propel It to the $3 Trillion Club

The rapid advancements in artificial intelligence (AI) are reshaping the technology industry, creating a new wave of wealth. These sophisticated algorithms are increasing productivity and efficiency, setting the stage for what experts are calling the fourth industrial revolution.

Apple, Nvidia, and Microsoft lead the market with valuations exceeding $3 trillion. Their connection? A strong focus on AI development. As this technology continues to evolve, new contenders may soon emerge, vying for a spot in this elite market cap group.

Amazon (NASDAQ: AMZN) stands at the forefront of AI research and application. By embracing AI, Amazon is poised to join the $3 trillion ranks by 2027. Let’s explore how AI is driving this potential growth.

Image source: Getty Images.

Enhancing Efficiency: Amazon’s AI Strategy

Amazon has a history of utilizing advanced algorithms to streamline operations. Recently, the company has harnessed generative AI to elevate efficiency further.

According to CEO Andy Jassy, Amazon’s innovations in AI-driven robotics have significantly simplified stowing, picking, packing, and shipping tasks. This advancement has led to a reduction in fulfillment processing time by up to 25%. Last year, fulfillment costs accounted for over 10% of Amazon’s operating expenses, emphasizing how even modest efficiency gains can greatly impact profitability. Ongoing automation in its fulfillment network promises to only increase these profits.

Another factor in Amazon’s success is its ability to present the right products to consumers at the right time. Previously relying on algorithms for product recommendations, the company has enhanced this process with generative AI. Additionally, Amazon has rolled out Rufus, a generative AI shopping assistant, in all major markets to assist shoppers in finding their desired products, ultimately boosting sales.

Moreover, Amazon is developing a range of generative AI tools tailored to enhance advertising for third-party sellers. For instance, its video generator can transform a single product image into personalized customer videos. Since more than 60% of Amazon’s sales come from third-party merchants, empowering them translates to success for Amazon itself.

A significant advantage lies in Amazon’s cloud services. Access to vast data is crucial for building competent AI models. Generative AI models typically require at least 1 billion data points for training, making Amazon’s extensive data access a unique asset.

As the largest cloud infrastructure provider globally, Amazon Web Services (AWS) is releasing AI capabilities at an outstanding pace. Jassy noted that in the last 18 months, AWS introduced nearly double the machine learning and generative AI features of its nearest competitors combined.

Additionally, Amazon offers an array of popular AI models on its Amazon Bedrock platform, featuring LLMs from AI21 Labs, Anthropic, Cohere, Meta Platforms, Mistal AI, Stability AI, and its proprietary models.

For budget-conscious clients, Amazon has introduced its custom AI chips—Trainium and Inferentia—facilitating AI access even for cost-sensitive users.

The extensive range of AI offerings positions Amazon to catalyze widespread AI adoption, further fueling its growth. AWS contributed 17% to Amazon’s revenue, accounting for 62% of its operating profit this year. By leading the AI offerings, Amazon is enhancing growth in its biggest revenue stream.

These examples highlight how Amazon is leveraging AI to elevate its business and secure a place in the coveted $3 trillion club.

Mapping the Journey to $3 Trillion

Currently, Amazon’s market cap stands at approximately $2.39 trillion (as of this writing). To reach $3 trillion, the company needs its stock price to increase by about 25%. Wall Street predicts Amazon will achieve revenues of $638 billion in 2024, resulting in a forward price-to-sales (P/S) ratio of around 3.4. Assuming this ratio remains unchanged, Amazon’s revenue would need to grow to $799 billion to justify a $3 trillion valuation.

Forecasts indicate an 11% annual sales growth for Amazon over the next five years. If successful, Amazon may reach a $3 trillion market cap by 2027. Notably, the company has seen its annual revenue surge by nearly 442% over the past decade, suggesting that Wall Street’s predictions could be conservative.

At a forward P/S of approximately 3.4, Amazon appears relatively inexpensive compared to Nvidia and Apple, which hold ratios of 17 and 8, respectively.

This presents an attractive investment opportunity for a company poised to benefit from the rapid adoption of AI.

Seize the Opportunity: Don’t Let This Chance Slip Away

Have you ever felt like you missed a great investment opportunity in top stocks? If so, there’s important news for you.

On rare occasions, our expert analysts issue a “Double Down” stock recommendation for companies expected to experience significant growth. If you believe you missed your chance before, now might be the perfect moment to invest.

The results speak for themselves:

• Nvidia: If you had invested $1,000 when we double down in 2009, you’d have $361,233!
• Apple: If you invested $1,000 when we doubled down in 2008, you’d have $46,681!
• Netflix: if you had invested $1,000 in 2004, you’d have $505,079!

Currently, we are issuing “Double Down” alerts for three exceptional companies, and this may be one of the last opportunities to invest.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 9, 2024

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, also serves on The Motley Fool’s board. Danny Vena has positions in Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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