Two Compelling Reasons to Invest in Amazon Stock

Many investors are captivated by fast-growing stocks, but overlooking major, established companies could be a mistake. One prime example is Amazon (AMZN), which stands to gain significantly from two substantial opportunities ahead.

Now is the time to consider investing in Amazon to take advantage of its potential in both artificial intelligence (AI) in cloud computing and the expanding digital advertising landscape.

1. The Huge Potential of AI in Cloud Computing

The first compelling reason to look at Amazon as a worthwhile investment is the immense potential it holds in the AI sector, particularly regarding its recent strategies involving AI leader Anthropic and its robust cloud computing offerings.

Recently, on November 22, Amazon revealed an additional investment of $4 billion in Anthropic, the company behind the popular AI chatbot Claude, raising its total investment to $8 billion. This partnership establishes Amazon as both the primary cloud provider and the main training partner for Anthropic.

Such a collaboration positions Amazon prominently in the competitive field of AI cloud computing by integrating Anthropic's technology into Amazon Web Services (AWS). Moreover, competing tech giant Microsoft has also made substantial investments, pouring over $13 billion into OpenAI, the company behind ChatGPT, highlighting the competitive landscape in AI.

AWS is already experiencing impressive growth, with a 19% increase in sales during the third quarter, amounting to $27.5 billion. According to Amazon's Chief Financial Officer, Brian Olsavsky, many customers recognize that leveraging generative AI effectively requires moving their operations to the cloud.

The long-term outlook for Amazon is promising, with Goldman Sachs projecting that the global revenue from the AI cloud computing market could reach around $2 trillion by 2030. As the leading cloud service provider with a 31% market share, Amazon is well-positioned to experience significant growth in AI cloud computing in the years to come.

2. Expanding Digital Advertising Business

While advertising might not be the first thing that comes to mind when thinking about Amazon, it is important to note that the company's advertising segment is showing remarkable growth that investors should consider.

In its third quarter, Amazon's advertising sales grew by 19% to reach $14.3 billion. To frame this in context, that figure represents a $1.7 billion increase compared to the company's total ad sales five years ago.

This upward trend has enabled Amazon to capture 13.9% of the U.S. digital advertising market, with forecasts suggesting that it could expand to 17.3% by 2026, according to eMarketer. By the end of 2026, Amazon's advertising revenue could skyrocket to an estimated $94.5 billion, effectively doubling what it reported in 2023.

Looking forward to 2030, it is estimated that 84% of U.S. advertising expenditures will be dedicated to digital ads, as stated by Statista. This trend offers Amazon ample room for expansion within this rapidly growing sector. The company's stronghold in e-commerce and its initiatives to provide more digital video content, including streams of NFL and NBA games through Prime Video, are likely to drive additional ad revenue.

Amazon's Stock Valuation

While Amazon's stock may not be the lowest-priced option on the market at the moment, it is worth noting that it might not be as overpriced as some may assume. Currently, Amazon shares have a forward price-to-earnings ratio of 33.4, which is a moderate premium compared to the S&P 500's forward P/E ratio of 27.8.

Given Amazon's stronghold in AI cloud services and its advancing digital advertising business, now could be an opportune moment to invest in Amazon stock.

Amazon, Investing, Opportunities