In late 2022, digital assistant ChatGPT popularized generative artificial intelligence (AI), which uses machine learning models to create media content like text, images, and video. Since ChatGPT hit the market, companies across every industry have invested aggressively in generative AI, hoping to boost worker productivity through automation.
Chipmaker Nvidia has benefited greatly from that development. Its revenue nearly tripled in the past year due to unprecedented demand for its data center GPUs, and its share price rocketed 145% during the same period. However, investors who missed those gains have not missed their chance to make money on the AI boom.
Bloomberg Intelligence estimates that generative AI sales will increase by 2,040% to $1.4 trillion by 2032, compounding at 41% annually. That rising tide will lift many companies higher over the next decade, but Amazon (NASDAQ: AMZN) should be a major winner. Here's why.
Amazon is investing in artificial intelligence across its three core businesses
Amazon has a strong presence in three quickly growing markets. As measured by revenue, the company runs the leading e-commerce marketplace in North America and Western Europe. It is the third-largest digital advertiser in the world and the largest retail media advertiser. And Amazon Web Services (AWS) is the dominant public cloud in terms of infrastructure and platform services.
Amazon uses artificial intelligence (AI) to improve efficiency and create new revenue streams across all three business segments.
E-commerce: In February, Amazon launched a generative AI shopping assistant (Rufus) for consumers. It has also introduced generative AI tools that help sellers create product listings. Additionally, in North American fulfillment centers, Amazon uses generative AI and computer vision to uncover product defects before they are shipped to consumers. And it uses machine learning to optimize warehouse inventory and last-mile delivery, making its logistics business more efficient.
Digital advertising: Last year, Amazon introduced a generative AI tool that lets marketers create relevant and engaging lifestyle images featuring their products, which theoretically helps brands run more cost-effective advertising campaigns. Additionally, Amazon uses machine learning to ensure consumers see relevant sponsored product advertising on the marketplace.
Cloud computing: AWS has designed custom AI chips for training and inference as a cheaper alternative to Nvidia GPUs. The company has also added new features to its machine learning platform SageMaker and generative AI platform Bedrock. CEO Andy Jassy recently told analysts, "During the past 18 months, AWS has launched more than twice as many machine learning and generative AI features into general availability than all of the other major cloud providers combined."
More broadly, AWS accounted for 32% of cloud infrastructure and platform services (CIPS) spending in the June quarter, which puts it nine percentage points ahead of the next closest competitor, Microsoft Azure. Leadership in CIPS means AWS should be a major beneficiary as businesses spend more aggressively on artificial intelligence.
In a recent note, Jim Kelleher at Argus wrote, "As the leading provider of infrastructure-as-a-service and other cloud services, AWS is positioned uniquely in the burgeoning AI-as-a-service market." Additionally, executives surveyed by Morgan Stanley collectively see Microsoft Azure and AWS as the public clouds most likely to gain share in generative AI in the next three years.
Amazon stock trades at a reasonable valuation
Retail e-commerce sales are projected to increase by 8% annually through 2028, and digital ad spending is projected to grow by 10% annually during the same period, according to eMarketer. But retail media is one of the fastest-growing verticals in advertising, so Amazon should outpace the average. Indeed, the company is gaining share so fast that it could overtake Meta Platforms as the second-largest ad tech company by 2030.
Additionally, the International Data Corp. (IDC) estimates that public cloud spending will increase by 19% annually through 2028. However artificial intelligence platform services are expected to be the fastest-growing vertical within cloud computing, with spending compounding at 51% annually during that period. That bodes well for AWS given its leadership in CIPS.
Those forecasts give Amazon a good shot at double-digit sales for the foreseeable future, and earnings should grow slightly faster as the company prioritizes cost control. Wall Street expects Amazon's adjusted earnings to increase at 25% annually through 2025, which makes the current valuation of 42 times adjusted earnings seem reasonable. That's why now is a good time for patient investors to buy a small position in Amazon stock.
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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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, 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.
Generative AI Sales Could Soar 2,040%: My Pick for the Best AI Stock to Buy Now (Hint: Not Nvidia) was originally published by The Motley Fool