Source: PaxForex Premium Analytics Portal, Fundamental Insight
Amazon isn't a stock that appeals to every investor. The e-commerce and cloud computing behemoth is known for its high valuation ratios, and its revenue growth has decelerated in recent years. Moreover, achieving significant percentage-rate growth becomes increasingly challenging for a business of its massive scale. With a market cap of $1.94 trillion and $591 billion in trailing revenues, Amazon epitomizes these concerns.
Despite these factors, not investing in Amazon now might be a decision you regret later. While Amazon's past is rooted in online retail, its future is increasingly intertwined with artificial intelligence (AI).
AI is revolutionizing Amazon's business model in significant ways. By integrating AI tools and services throughout its extensive operations, Amazon is boosting efficiency and uncovering new business avenues.
For instance, Amazon Go stores use AI to provide seamless, cashier-less shopping experiences, utilizing smart shopping carts to track purchases in real-time. Amazon Web Services (AWS) is leveraging AI to attract a growing number of enterprise clients seeking robust, scalable solutions. Additionally, Amazon's warehouses and shipping centers are heavily automated, featuring advanced inventory tracking and numerous robotic product-picking devices.
AI is also propelling Amazon into new sectors like healthcare, through initiatives such as Amazon Care and AI-driven diagnostic tools. A notable recent development is Amazon's $4 billion investment in AI research firm Anthropic, mirroring Microsoft's $13 billion investment in OpenAI, the creator of ChatGPT.
In essence, Amazon's practical application of AI is integral to its operations. Without AI, the company would struggle to maintain its current pace. However, with its innovative AI capabilities, Amazon sets a high standard for operational efficiency across multiple sectors and industries.
This comprehensive approach keeps Amazon at the cutting edge of innovation, continuously evolving its business model to unlock new growth opportunities. From its core e-commerce business to its advanced AI services, Amazon's success is powered by diverse and sophisticated AI technologies.
Imagine if Amazon decided to spin off AWS into a separate entity. How much would this tech giant be worth on its own?
Starting with a revenue-based valuation, AWS generated $90.8 billion in sales in 2023. Using Amazon's price-to-sales (P/S) ratio of 3.3, AWS alone could be valued at $300 billion.
However, Amazon's overall P/S ratio also reflects its less profitable and slower-growing e-commerce division. Companies more focused on the AI market have P/S ratios ranging from 7 to 37. Taking an average P/S ratio of 20 for AWS suggests a market value of at least $1.8 trillion. Even using a more conservative P/S ratio of 11, similar to Microsoft's, AWS would still be valued at around $1 trillion. This valuation doesn't factor in any support from Amazon's e-commerce business.
This estimate might actually be conservative. Nvidia, for instance, trades at 81 times its last fiscal year's operating income. Applying a similar metric to AWS results in a valuation of about $2 trillion - roughly equal to Amazon's entire current market cap.
Essentially, if the market is fully recognizing Amazon's AI-driven AWS division, it seems to be overlooking the value of its leading online retail platform and extensive logistics network.
Thus, AWS alone could be seen as a trillion-dollar operation, especially if Amazon were to spin it off. Meanwhile, the e-commerce division appears significantly undervalued. Investing in Amazon today means accessing the high-growth potential of AWS and a substantially discounted investment in e-commerce, offering a dual advantage.
Amazon should be a cornerstone of any diversified investment portfolio, and it’s not too late to get in. As the world's largest start-up, Amazon continues to pursue substantial global growth.
As long as the price is above 180.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 186.33
- Take Profit 1: 190.00
- Take Profit 2: 195.00
Alternative scenario:
If the level of 180.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 180.00
- Take Profit 1: 175.00
- Take Profit 2: 170.00
