Why Amazon is a Top Pick in the AI Market

The artificial intelligence (AI) market is rapidly expanding, especially since OpenAI launched ChatGPT. Corporations are eager to join the race, with Nvidia appearing as a noteworthy investment. However, my strong recommendation for a buy-and-hold option is Amazon (NASDAQ: AMZN).

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Diverse Business Portfolio

Amazon’s appeal lies in its diversification beyond AI, allowing it to thrive even amidst industry challenges or economic downturns. For instance, the company is a leader in the grocery sector and holds the largest share in the U.S. e-commerce market.

Last year, Amazon was recognized as the cheapest online retailer for the eighth consecutive year, according to an independent study. This advantage, combined with perks like one-day shipping and easy returns, contributes to its resilience.

Amazon Web Services (AWS), its cloud computing arm, is another significant growth engine. AWS not only offers various AI services but has the potential for extensive growth, as pointed out by CEO Andy Jassy: “More than 85% of the global IT spend is still on premises, so not in the cloud yet.”

AWS currently boasts a $117 billion annual run rate, while Amazon’s total net sales last year were $638 billion. This gap indicates a promising trajectory for AWS as more businesses transition to the cloud.

AI Integration Across Operations

Amazon is not limited to AI services through AWS; the company is also integrating AI technology across various aspects of its operations. Jassy noted that Amazon now has over 1,000 AI applications, including enhancements in its virtual assistant Alexa Plus and its fulfillment network.

This broad implementation of AI aims to improve customer service, positioning Amazon for greater efficiency as these initiatives expand.

Growth Potential Beyond Cloud Services

With a market cap near $2.3 trillion, Amazon is one of the world’s largest companies. Contrary to beliefs that its size limits growth, Amazon still has robust opportunities, particularly in its advertising business. As one of the most visited websites globally, it serves as an attractive platform for businesses seeking to reach consumers directly.

In the first quarter, Amazon’s advertising revenue reached $13.9 billion, growing 18% year over year—outpacing even AWS’s growth. The digital advertising market is far from saturated, indicating more room for expansion.

Amazon’s fastest-growing segments, advertising and AWS, also generally offer higher margins than its traditional e-commerce services, which bodes well for future profitability.

A Vast Customer Base

Another significant factor is Amazon’s ecosystem, boasting around 200 million Prime members. This membership base allows Amazon to offer various services and subscriptions that enhance customer loyalty.

The success of Amazon Pharmacy is a perfect illustration, disrupting the U.S. pharmacy market and providing substantial savings and shipping perks to users. Such initiatives reflect Amazon’s ability to innovate across sectors.

In summary, with AI, AWS, advertising, and a strong customer base as growth drivers, Amazon stands out in a competitive landscape. This diversified approach positions the stock for sustained long-term returns.

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