Excitement around artificial intelligence (AI) drives market growth following market sell-off in 2022 Nasdaq IndexThe “Seven Big” stocks that rose 43% last year—— Amazon (NASDAQ: AMZN), apple, letter, Microsoft, Yuan, Nvidiaand Tesla ——Contributed most of the market gains.
Microsoft and Alphabet have kicked off the artificial intelligence revolution after making large investments in startups such as ChatGPT developer OpenAI and Anthropic.
Amazon doesn’t seem to be keeping pace with its big tech allies when it comes to artificial intelligence. Over the past year, however, the company has quietly made inroads into the space, and investors are beginning to understand the company’s potential: an artificial intelligence leader.
Let’s take a deeper look at what Amazon is doing and how artificial intelligence could open up its next growth area.
Tea leaves are inspiring
Over the past half-century, the Nasdaq has posted negative annual returns 14 times, but interestingly, there have only been two periods in which it declined for more than a year: 1973-1974 and 2000-2002.
Since 2001, the Nasdaq has experienced annual declines of more than 30% three times: in 2002, 2008, and 2022, but after the market crashes in 2002 and 2008, the index has surged for several consecutive years since then. The index returned an average of 16% from 2003 to 2007, with annual growth ranging from 1.4% to 50%. In 2009 and 2010, the average growth was 30%, with growth of 44% each year and 17% the next.
If history repeats itself, the Nasdaq will rise this year. Will history repeat itself? Nobody knows.
But even if no one knows what will happen, the general idea is that capital markets are resilient and tend to rebound relatively quickly. While Amazon has suffered in e-commerce as consumer confidence has declined, in cloud computing the company has made a number of strategic moves as businesses rein in spending, which should encourage investors, especially the Nasdaq. Optimism for a strong 2024 performance for the index is growing.
Amazon’s Artificial Intelligence Empire
Amazon dominates headlines after launch Investment in Alphabet-backed Anthropic End of 2023. While this may give the impression that Amazon is chasing Microsoft and Alphabet, the deal includes many important features.
First, Anthropic will now use Amazon Web Services (AWS) as its primary cloud provider. Anthropic will also use Amazon’s own chips to train the future generative artificial intelligence This partnership is important for several reasons.
First, AWS’s revenue growth has slowed for several consecutive quarters. Anthropic’s addition to the AWS ecosystem should help breathe new life into the cloud computing leader, as it opens the door to countless new AI-powered applications.
Using Amazon’s Trainium and Inferentia chips could be a subtle opportunity as the AI semiconductor market is dominated by Nvidia and Advanced Micro Devices at the moment.
The chart below shows Amazon’s price-to-sales (P/S) multiple based on its “big seven.” This metric shows how much investors are paying compared to company revenue.
Amazon stock looks great
The company’s price-to-earnings ratio of 3.1 is not only the lowest among its Big Tech rivals, but it’s also in line with the 10-year average.
I think it’s both interesting and confusing that Amazon’s P/E ratio has been flat given how much it has grown over the past decade. To me, investors are underestimating the company’s partnership with Anthropic and may think there’s too much competition from Microsoft and Alphabet but I think that’s wrong.
AWS is going through a new stage of development, with artificial intelligence at its core. As generative AI becomes more and more of a focus for IT budgets, I think sooner or later enterprise software spending will shift away from the primary expense of deploying applications to more cloud-based protocols.
Amazon’s development of its own chips and its deal with Anthropic are important steps to capitalize on this trend. While investors may not have seen rocket growth yet, the company’s position in the artificial intelligence space shouldn’t be underestimated. The long-term outlook looks encouraging, and now is an attractive opportunity to start buying some stocks using dollar-cost averaging.
Should you invest $1,000 in Amazon right now?
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Randi Zuckerberg, sister of former Facebook market development director and spokesperson and Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, the former CEO of Amazon subsidiary Whole Foods Market, is also a board member. Suzanne Frey is a senior executive at Alphabet and a board member of The Motley Fool. Adam Spatako Holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool has positions and recommendations at Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Motley Fool has a disclosure policy.
History suggests the Nasdaq could soar in 2024. Here’s an artificial intelligence (AI) stock that looks poised to boom. Originally published by The Motley Fool