Come for the online shopping, stay for the cloud services. Amazon (NASDAQ:AMZN) is truly the one-stop shopping place for all your investment needs. Amazon stock is not some hidden gem or a diamond in the rough. It’s a fully polished precious gem that could become the crown jewel of your portfolio.
As most investors understand, retail is where Amazon generates the vast bulk of its revenue, but Amazon Web Services (AWS) is where it makes most of its profits. In the just-completed third quarter, the retailer posted revenue of $143 billion, up 13% year-over-year.
While this is the broad stroke of Amazon’s business, there is much more at play.
Amazon Stock: An AI Titan
Most investors don’t consider Amazon an artificial intelligence (AI) stock, but AI permeates every business level.
In e-commerce, AI and machine learning are behind Amazon’s product recommendations. There is a reason it is the largest online retailer. It has a 37.6% share of the market, according to Statista. Walmart (NYSE:WMT) is a distant second with a 6.4% share. AI is also part and parcel of its Amazon Go stores utilizing just-walk-out technology.
The e-commerce giant has also just deployed AI tools on its platform for third-party sellers to help them write better, more engaging product descriptions. Marketers also will be able to use the tools to create better, more effective ads.
Amazon’s AI smart assistant Alexa is increasingly being used for shopping, too. Alexa is the global smart speaker leader with a 28% share, ahead of Alphabet‘s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Home at 17%.
Amazon also optimizes AI in its warehouses to predict demand, track the supply chain, and evaluate delivery routes. The two-day shipping we now expect from all retailers is because of Amazon. It also has a suite of tools available for enterprise customers on AWS. Whether it is for Amazon’s products, analyzing data, or powering its apps, AI is now a central component of its cloud services.
Reinventing itself for today’s consumer
And Amazon never stops innovating. While buying cars online isn’t exactly new, Amazon’s entry into the market will undoubtedly upend the industry.
Tesla (NASDAQ:TSLA) sells most of its cars online after a hard-fought battle against the dealership model that dominated the industry for decades. Now, Amazon is launching its own service with Hyundai (OTCMKTS:HYLMF). Customers can search based on various preferences, including model, trim, and color. They can also choose payment and financing options. Amazon brings substantial financial heft and consumer reach to the space. Existing rivals like Carvana(NYSE:CVNA) and CarMax (NYSE:KMX) fell on the news.
As the rate of growth in online retail sales slows, Amazon needs new avenues to pursue. Although the financial details of the deal with Hyundai weren’t released, it’s obvious it will be beneficial to both. We may eventually see other brands follow Hyundai as the online seller.
High-priced gem worth the cost
Amazon’s stock is not cheap by traditional metrics. It is richly valued at 75 times earnings and 87 times the free cash flow it generates. Yet Amazon has always been expensive. The price-to-earnings ratio is actually at the lower end of the range the stock traded between over the past decade. The same is true with FCF, even if it is a bit elevated. Price-to-sales is where it traded back in 2016 and well below its pandemic-era highs.
Not everything Amazon does works out. Does anyone remember the Amazon Phone or Amazon Wallet? But when sticking to its wheelhouse, the tech behemoth excels. Retail and cloud services are its forte, but AI could reignite substantial growth once again. No matter, it’s a stock investors can own with confidence.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
