Artificial intelligence (AI) has become the star attraction of the current stock market milieu. The fervor surrounding AI technology pushed the Nasdaq Composite up by over 40% the previous year. Not to be left behind, the “Magnificent Seven” tech giants played a pivotal role in propelling the S&P 500 to new heights.

The Nasdaq: A Historical Perspective

For over 50 years, the Nasdaq Composite index has weathered various storms, posting negative annual returns only 14 times. In the past two decades, the Nasdaq witnessed severe drops of 30% or more on just three occasions: 2002, 2008, and 2022. Notably, 2008 marked the onset of the Great Recession, while 2022 grappled with rising inflation. However, recent actions by the Federal Reserve to tackle inflation have brought semblances of stability.

Following the sharp declines in 2002 and 2008, the Nasdaq experienced robust rebounds in the subsequent years, with an average annual return of 16% between 2003 and 2007 and a 30% average rise between 2009 and 2010.

While past performance doesn’t dictate future outcomes, historical trends point to the resilience of the capital markets. Given the Nasdaq’s stellar 2023 performance and the escalating interest in AI, prospects look bright for the tech-centric index in the upcoming year.

Image source: Getty Images.

Evaluating Amazon’s AI Ventures

In a market rife with AI contenders, Amazon’s AI investments might fly under the radar. In a significant move in September, Amazon unveiled a substantial investment in Anthropic, a direct competitor to OpenAI. This strategic tie-up primarily aims to fortify Amazon’s cloud domain.

Profound shifts in budgeting practices across businesses have had a profound impact on the tech sector, with demand for enterprise software dwindling. Amazon’s cloud segment, a major profit center contributing nearly 70% of the company’s operational earnings, has felt the brunt of this downturn.

Amazon’s collaboration with Anthropic signals a strategic pivot to reignite interest in its cloud services. Anthropic is set to utilize Amazon Web Services (AWS) as its primary cloud provider along with Amazon’s semiconductor chips for training next-gen generative AI models.

This synergy could potentially serve as a lucrative source of lead generation for AWS. As Amazon integrates more AI-driven solutions into its cloud portfolio, heightened demand catalyzed by Anthropic’s offerings could be on the horizon.

Amazon’s Compelling Valuation

When juxtaposed against the Magnificent Seven, Amazon emerges as the most attractively valued stock based on a price-to-sales (P/S) ratio of 3.1. The premium valuations of Nvidia and Microsoft could be attributed to demonstrating how AI augments their business models, setting them apart in investors’ eyes.

AMZN PS Ratio data by YCharts

The Untapped Potential of Amazon in AI Landscape

Market Perception Vs. Real Potential

Despite some investors feeling Amazon lacks in AI capabilities compared to its competitors or not displaying substantial growth, I believe Amazon stock is currently undervalued. AI holds enormous potential to revolutionize Amazon’s core businesses in e-commerce and cloud services.

A Unique Investment Opportunity

Amazon is strategically positioning itself for long-term growth, even though overshadowed by other tech giants. It’s crucial not to underestimate Amazon’s potential in the AI sector. The current market scenario presents an excellent chance for long-term investors to acquire shares at an appealing valuation.

Investing Wisdom

Before committing funds into Amazon stock, it’s wise to consider other expert opinions. The Motley Fool Stock Advisor team recently highlighted the ten best stocks for investors to consider, with Amazon not being among them. This suggests that other stocks might potentially offer substantial returns over the coming years.

The Stock Advisor service has consistently outperformed the S&P 500 since 2002, providing investors with valuable insights, portfolio guidance, regular updates, and new stock picks.

Final Thoughts

In conclusion, the landscape of artificial intelligence beckons Amazon with endless opportunities for growth and innovation. By taking appropriate steps now, the company can solidify its position as a key player in the AI sector, offering investors a promising long-term growth trajectory.