Amazon’s Footprint in AI: Investment Potential for 2025
Amazon (NASDAQ: AMZN) has proven to be a strong investment historically, with its stock soaring over 1,400% in the last decade. Last year alone, it rose by 44%. This impressive growth stems largely from Amazon’s leadership in the rapidly expanding fields of e-commerce and cloud computing, generating substantial revenue and profits consistently.
Recently, Amazon has raised the stakes by focusing on artificial intelligence (AI). The company utilizes this trending technology to enhance its operations and efficiency while offering AI tools through its Amazon Web Services (AWS) division. This strategy sparked significant interest in the stock last year, positioning Amazon as a prominent player in the AI sector.
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As we begin 2025, however, Amazon has not been a standout investment. The stock price has remained relatively stable from the beginning of the year up until January 17. So, what is the verdict: buy, sell, or hold in 2025? Let’s explore.
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Building a Global E-commerce Leader
Amazon’s e-commerce business has established itself as a global leader. The Prime subscription service now has more than 200 million members, who enjoy rapid and free delivery as well as an extensive array of entertainment options, including books, sports, and movies. The retention rate is impressively high, with about 97% of U.S. Prime members renewing their subscriptions in the first quarter of 2023, as reported by Statista.
In previous years, Amazon faced challenges due to rising interest rates. During this period, the company restructured its costs effectively. Job cuts and an optimized fulfillment network have brought inventory closer to customers, allowing packages to be delivered from regional centers rather than national ones. This adjustment reduced costs and enabled Amazon to maintain competitive pricing.
Additionally, Amazon is employing AI to enhance efficiency in its warehouses through robotics, ultimately improving the shopping experience for both customers and sellers.
While e-commerce often comes to mind first, it is actually the cloud computing arm, AWS, that drives Amazon’s profits. As the leading provider of cloud services, AWS has seen substantial growth, particularly with AI, which helped the division reach an annualized revenue run rate of $110 billion last year.
Expanding Footprint in AI
AWS has a clear strategy: to be involved at every level of AI. This includes selling fundamental components like chips and providing fully managed services tailored to clients’ needs. Their AI applications assist with tasks such as helping customers find products or enabling developers to create code. Looking ahead, AWS could benefit significantly from what is referred to as agentic AI—software capable of solving problems and reasoning.
For instance, Project Amelia aids sellers in preparing their stores for events like the holidays, eventually evolving into a more sophisticated function. AWS also facilitates the creation of customized AI agents for clients.
Returning to our main question: Is Amazon a buy, sell, or hold this year? Currently, the stock trades at 35 times forward earnings estimates, down from over 42 times a few weeks ago. This reduced valuation appears attractive, especially given Amazon’s robust earnings history and its strong position in the fast-growing AI market. This suggests that Amazon is a compelling buy, and for existing shareholders, it remains a hold.
Though exact performance predictions are impossible, ongoing earnings growth and advancements from Amazon’s AI initiatives could act as key positive factors. Moreover, Amazon’s established strengths in e-commerce, cloud computing, and AI position it well for future growth, potentially enhancing its share value over time.
Should You Invest $1,000 in Amazon Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino holds positions in Amazon. The Motley Fool has positions in and recommends Amazon. 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.
