Many people know Amazon (NASDAQ:AMZN) as a place to buy products online in practically every category. Yet, the company is also a cloud king with its Amazon Web Services business. Plus, Amazon deploys artificial intelligence in some of its services. So, while AMZN stock isn’t necessarily ultra-cheap, it gets a “B” grade and could move higher in 2024.
Admittedly, sticklers for deep value might object to Amazon’s GAAP trailing 12-month price-to-earnings ratio of 69.33x. That’s considerably higher than the sector median P/E ratio of 14.91x. Thus, not everyone will be interested in taking a share position in Amazon right now. Add Amazon to your watch list for exposure to a strong cloud-market contender with AI technology.
AMZN Stock Perks Up on Strong Quarterly Results
Even though AMZN stock is still substantially below its 2021 peak price, it showed signs of life on Oct. 26. That’s when Amazon released its third-quarter 2023 financial results.
A Bloomberg article called Amazon’s AWS cloud division an “earnings machine,” and rightly so. In Q3 2023, Amazon’s AWS segment sales increased 12% year over year to $23.1 billion. Furthermore, AWS segment operating income totaled $7 billion, versus $5.4 billion in the third quarter of 2022.
This doesn’t mean Amazon’s seemingly high valuation is irrelevant. Yet, Amazon’s cloud-division income growth could buoy investors’ confidence in AMZN stock in 2024.
There’s a crucial AI connection here. Amazon CEO Andy Jassy emphasized that the “AWS team continues to innovate and deliver at a rapid clip, particularly in generative AI.”
Specifically, Jassy pointed to the combination of “our custom AI chips,” with Amazon Bedrock “being the easiest and most flexible way to build and deploy generative AI applications” (in his opinion, at least).
Gen-AI May Be Amazon’s Best Weapon
Admittedly, when the discussion involves machine learning, Amazon typically isn’t the first company that investors think of. However, generative AI may end up being Amazon’s best weapon in tailoring advertisements for its e-commerce platform.
According to a Reuters report, Amazon is currently using generative AI in order to create better product images for the company’s advertisers. The company can leverage data from over 160 million Amazon Prime subscribers and utilize gen-AI to help merchants target the right shoppers.
Jassy touted Amazon’s ability to entice shoppers with its AI-enhanced advertisements. “When (advertisers) have to think about budget decisions, they’re going to choose (ads) that have large volume and perform better,” Jassy said.
“I think both of those are real advantages in our advertising area right now,” the CEO added. Going forward, investors should look for concrete evidence in upcoming financial reports that Amazon’s gen-AI-enhanced ads are substantially contributing to the company’s top and bottom lines.
Could AMZN Stock Revisit Its All-Time High?
Amazon’s investors enjoyed amazing gains in 2021 as the share price touched $175. The stock could get back there in 2024, but patience will be required and there are no guarantees.
For the time being, Amazon’s financials will get a nice boost from the AWS cloud division “earnings machine.” However, it will be up to Amazon to demonstrate that the company is effectively deploying gen-AI technology.
At the end of the day, extreme-value investors might not be enamored with Amazon right now. In contrast, growth-focused traders might appreciate Amazon’s power position in the cloud-computing market. Therefore, AMZN stock gets a “B” grade and has a decent chance of reclaiming its previous peak price in the coming year.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
