Even with the volatility this year, Amazon.com (NASDAQ:AMZN) is still up about 25% or so. There never seems to be much downside to Amazon stock.
Now the company certainly has its issues and risks. The acquisition of Whole Foods has not been a winner and the core ecommerce segment has seen decelerating growth.
There’s also indications that the federal government is looking at Amazon.com as a violator of antitrust laws.
In the meantime, CEO and founder Jeff Bezos has been the source of much drama, as seen with his divorce. Although, perhaps the biggest risk for AMZN stock is that the company is involved in many different categories. Does management have the bandwidth to operate all this?
Well, as we’ve seen with other companies like Cisco (NASDAQ:CSCO) and General Electric (NYSE:GE) that expanded well beyond their core business, it can be difficult to remain competitive. This is probably even more difficult nowadays because of the availability of the enormous of amounts of venture capital to fund innovative startups.
But despite all this, I still think Amazon stock remains a pretty good choice. And to see why, let’s take a look at three reasons:
Amazon Stock: Multiple Growth Drivers
The so-called “law of big numbers” is a real concern for Amazon stock. With annual revenues at $240 billion, it’s extremely difficult to keep up the growth rate. Even a 10% increase would represent the revenue base of a major company!
But Amazon.com’s ability to play in multiple markets has turned out to be critical. If anything, this ability seems part of the company’s DNA.
Here’s a look at just some of the markets the company is targeting, which should help keep up the long-term growth rate:
- Healthcare: In May 2018, Amazon.com acquired PillPack, a next-generation online pharmacy. The company has revolutionized the packaging and distribution of prescription drugs. While Amazon.com has been quiet about its goals, it does look like the company sees huge potential in disrupting the $500 billion market.
- Online Advertising: In the past few years, AMZN has quickly become an important player in this market. The company’s massive ecommerce platform has the benefit of making a closer association between search and the purchase of goods, which of course, is a big plus for advertisers. Amazon is also working aggressively to expand its options, such as with video search ads.
- Delivery: This has been a big-expense item for Amazon.com. But the company is looking to turn this category into a business – that is, by offering freight brokerage services. AMZN already has an extensive transportation network it can leverage and there is the huge advantage of its data analytics.
Amazon Stock: Artificial Intelligence (AI)
AI is becoming a must-have in the tech world. To get a sense of the opportunity, look at a recent report from Gartner. It predicts that spending on AI will grow at 18% per year through 2020, reaching $383.5 billion.
As for AMZN, it is positioned nicely to get an out-sized portion of the market. The most obvious illustration of this is the segment that includes Alexa and Echo systems. During the past five years, Amazon has sold over 100 million of these devices.
To build on this, the company has been aggressive in creating a strong ecosystem of third-party developers (there are over 80,000 skills).
AWS is another key part of the AI strategy. With this platform, it’s possible to develop highly sophisticated algorithms at a low cost. For example, Amazon.com has recently launched SageMaker, which has gotten lots of traction.
According to Bezos: “SageMaker removes the heavy lifting, complexity, and guesswork from each step of the machine learning process — democratizing AI.”
Amazon Stock: Failure Is an Option
Bezos has admitted he has made many blunders. Some of them have been doozies, costing Amazon.com billions.
Interestingly enough, Amazon recently recognized another one of its failures: in the online food delivery business. It closed down the business because it could not compete effectively against tough rivals like Grubhub (NYSE:GRUB), Uber (NYSE:UBER) and DoorDash.
But such failures are good. Let’s face it, can a company truly innovate if it is not making mistakes? I don’t think so.
According to InvestorPlace.com’s Vince Martin:
“Amazon will try almost anything. As CEO Jeff Bezos wrote three years ago, Amazon is ‘the best place in the world to fail.’ Sometimes those efforts turn into Amazon Web Services, the company’s cloud business that by one estimate should be worth $350 billion in a couple of years.”
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.