Many shares related to artificial intelligence (AI) have done spectacularly well since ChatGPT was unleashed in late 2022. Nvidia and Palantir immediately spring to mind.
As such, some investors looking for AI stocks to buy today might assume they’ve missed the boat.
However, I don’t believe that’s the case. For Foolish investors willing to look past near-term challenges, I think Amazon (NASDAQ: AMZN) is worth a closer look. Shares of the tech giant are nearly 10% off a peak reached in February.
Isn’t it e-commerce though?
While most people are familiar with Amazon’s retail operation, some may be wondering what AI has to do with buying a pond pump, AAA batteries or a new bedside cabinet! Well, behind the scenes, AI powers the personalised recommendations we see when shopping, as well as optimising the company’s vast logistics networks.
Amazon recently deployed its millionth robot to a fulfilment centre in Japan, as well as introducing a new generative AI foundation model to make this massive fleet of robots smarter and more efficient at picking orders. Voice assistant Alexa runs on AI (new ones have advanced generative AI features).
Meanwhile, its AWS cloud division provides the computing muscle behind countless companies, including many involved in AI. In Q2, AWS grew revenue 17.5%, and is now up to a $123bn annual revenue run rate.
Near-term challenges
Given all this, why isn’t Amazon stock scaling new heights as the AI revolution deepens? It’s a fair question.
There appear to be three reasons. First, a lot of uncertainty remains around tariffs, which some fear might filter through to higher prices on its retail app. That could impact growth.
Second, capital expenditure is going to be higher than expected this year, primarily to support AWS and AI infrastructure. Investors appear worried that these huge investments will weigh on near-term profitability. This is another risk here.
Lastly, AWS is growing more slowly than rivals like Microsoft‘s Azure and Google Cloud. This has also spooked some investors, and is something we should monitor moving forward.
Thinking long term
The stock is currently trading at around 29 times forecast earnings for 2026. That’s low by Amazon’s historical standards, especially when it’s currently investing aggressively in AI rather than prioritising near-term profits.
As for the challenges mentioned, my strong suspicion is that they’ll matter far less over time. For perspective, e-commerce made up approximately 20% of total global retail sales in 2024, showing how large the long-term opportunity remains.
Meanwhile, AWS remains the 800-pound gorilla in global cloud computing, with around 29% market share. It’s rolling out AI agents through Bedrock AgentCore, a new platform that makes it easy for businesses to build, deploy, and scale intelligent agents securely.
On the recent Q2 earnings call, CEO Andy Jassy said: “If you look at the [AWS] business, it’s a $123bn annual revenue run rate business and it’s still early. I mean how often do you have an opportunity that’s $123bn of annual revenue run rate where you say it’s still early? It’s a very unusual opportunity that we’re very bullish about.”
Whenever Amazon has been very bullish on something, patient shareholders have generally been rewarded. I doubt this time will be any different, making the stock worth considering for a portfolio.
