Amazon(NASDAQ: AMZN) reported solid first-quarter results with revenue increasing 13% year over year to $143.3 billion and earnings per share (EPS) more than tripling to $0.98.
However, it was the company's commentary around artificial intelligence (AI) that should get investors most excited.
An AI push
If there has been one knock against Amazon recently, it's the fact the company's market-leading cloud business, Amazon Web Services (AWS), has been losing share to Microsoft's Azure and Alphabet's Google Cloud. And while AWS did not grow as quickly as these two competitors in the first quarter, its revenue still increased 17% year over year from a higher base to reach $25 billion. By comparison, Azure grew revenue 31%, while Google Cloud revenue climbed 28% over the same period.
Importantly, AWS's revenue growth has accelerated the past two quarters. Amazon said companies' data center cost optimization initiatives are largely complete, and the focus is now turning toward generative AI. Given this increasing usage, management said its capital expenditures will increase this year to procure and build out new data centers to meet this demand.
Amazon noted that while it will need to spend money upfront, this leads to better operating margins and free cash flow down the line. It also said 85% of global IT spend is still on-premises, so the combination of AI and companies moving to the cloud remains enormous.
AWS is not Amazon's only AI opportunity, as it is pushing the technology across the business from AI assistants to its own proprietary chips. The company said demand for its two AI chips, Trainium and Inferentia, has been high given their pricing and performance.
Amazon also offers SageMaker and Bedrock. The former helps customers build their own AI models by letting developers train models faster, prepare data for AI usage, and increase developer productivity. Bedrock, meanwhile, is a fully-managed service that offers foundation models from Amazon and AI start-ups, as well as tools to build generative AI applications. Both offerings have already garnered an impressive list of customers.
Amazon has developed a number of AI apps too. Among them is Amazon Q, an AI-powered assistant for software developers that it recently announced would become generally available. Q can perform tasks like generating, testing, and debugging code. It also has Agents, an app that can implement new features and refactor code to do software upgrades.
These various AI efforts are still in the early stages, but the company has created some of the largest e-commerce, logistics, and cloud computing businesses on the planet. Amazon has a proven history of being willing to invest in successful new businesses, and that has put it at the forefront of AI.
Image source: Getty Images.
Time to buy the stock
Amazon trades at a forward price-to-earnings (P/E) ratio of 41.5, but on an enterprise value-to-adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, its valuation comes down to 14.1. The latter figure takes out the non-cash depreciation costs from the buildout of its AWS infrastructure and logistics networks. Given the potential behind AI, that's not an expensive valuation.
Amazon likely has the biggest opportunity in front of it since the company launched AWS in 2006. That has gone on to become a $100 billion business in less than 20 years. AI is shaping up to be a game changer as well, and Amazon is one of the leading companies that can benefit from it across the entire business. That means now is still a great time to buy Amazon stock.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
