Key Points
Amazon (NASDAQ: AMZN) may not seem like the most glamorous investment in the age of artificial intelligence (AI), but it’s one of the biggest beneficiaries that slips under the radar for most investors. AI is having a major impact on Amazon’s business, and I’m not talking about how Amazon is deploying AI in its commerce business.
Instead, I’m more focused on Amazon Web Services (AWS), Amazon’s biggest profit driver. This is the single best reason to buy Amazon now, and I think investors would be wise to load up on shares, as the stock is primed to skyrocket over the next few years.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
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Why is AWS so important?
Amazon Web Services accounted for about 21% of revenue in the second quarter. So, it may seem like a somewhat insignificant part of Amazon’s business. However, revenue isn’t the only thing investors should be focused on.
Commerce businesses have historically had razor-thin margins, and Amazon is no exception. However, cloud computing is different, and Amazon can make a lot more profit from each dollar it brings in from AWS versus its commerce divisions. During Q2, AWS generated 60% of Amazon’s operating income. That’s an impressive share, and it shows just how much more profitable AWS is over Amazon’s other divisions.
It’s also growing significantly faster. In Q2, North American commerce sales rose 16% while international sales increased by 15%. AWS’ revenue increased at a 37% pace, easily outgrowing the other two. When the most profitable segment of the company is also growing the fastest, it’s a telltale sign of success, and that’s why Amazon looks like a great stock to buy now, as this pattern is likely to continue for some time.
Amazon is spending big on data centers to increase the available computing capacity of AWS. AI hyperscalers cannot get enough computing power, and AWS is one of the places they’re heading to get it. CEO Andy Jassy noted that Amazon will not have enough computing power available to meet demand in 2026, and the same appears to be occurring for 2027. With AWS’ backlog rising to $496 billion, there’s a massive amount of business already on the books.
AWS is the top reason to buy Amazon right now, and it will have a huge effect on the stock over the next few years. I think it will easily outperform the market and its peers, and is a solid buy now.
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Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.