The market was red hot this year, with the S&P500 index recently reached new highs. This increase was led by growth stocks as the economy remains solid and the potential of artificial intelligence (AI) is still in its infancy.
Stocks are performing well, but one growth stock that still looks like a solid buy right now is Amazon (NASDAQ: AMZN). If you have $5,000 to invest right now, Amazon could be a fantastic purchase. Let’s take a look at what makes the stock an attractive investment today.
E-commerce and cloud juggernaut
When we look at the biggest growth stocks in the S&P, the one thing most of them have in common is that they have become dominant players in some area. Examples include: Apple on smartphones, Alphabet to look up Nvidia with graphics processing units (GPUs).
However, Amazon has become a dominant leader two areas of expertise: e-commerce and cloud computing.
In the field of e-commerce, Amazon has managed to capture a dominant market share of almost 38%, according to data analysis website Statista. That’s well ahead of its next largest competitor Walmart with just over 6% share.
Amazon’s dominance can be attributed to its vast warehouse and logistics network that can deliver both its own products and third-party offerings on its platform to customers quickly and cheaply. The amount of goods on the platform is enormous, offering consumers an unprecedented number of options. The reviews on the company’s website and Amazon’s return policy should also not be overlooked, as they give consumers confidence in their purchases.
All in all, this has created a huge moat for the company. At the same time, e-commerce continues to grow robustly around the world, with the Boston Consulting Group projecting a compound annual growth rate of 9% through 2027.
Amazon should remain a big winner as e-commerce continues to grow and take market share from traditional brick-and-mortar retailers.
Meanwhile, Amazon is also the No. 1 player in cloud computing with the Amazon Web Services (AWS) platform, which has a market share of approximately 32%. Global cloud infrastructure services are on the rise as companies continue to move from on-premise solutions to the cloud along with the rise of AI.
As a result, AWS saw revenue growth of 17% to $25 billion in the first quarter of this year. Although strong, this followed the growth of Microsoft Azure and Google Cloud. The main challengers grew by 31% and 28% respectively.
AI capability
Over the years, Amazon has shown that it is determined to win and that it is willing to spend money to make sure that happens. So while the company may currently be behind in the AI race, I don’t expect this to continue.
The company is already starting to ramp up capital expenditures to build new data centers to meet the increasing demand for generative AI. During its most recent earnings call, the company said that while it will have to spend money up front, it will lead to better operating margins and free cash flow down the road.
Amazon has also started selling customers large language models (LLMs) to help them with their AI efforts. Through its Bedrock solution, the company provides customers with a number of basic models of both itself and AI startups, while its SageMaker offering helps customers create their own AI models by performing tasks such as preparing data for AI use and faster training of models. .
The company has also developed its own AI chips in Trainium and Inferentia, although taking market share away from Nvidia won’t be easy given the dominance of its Cuda software platform. Amazon is probably more towards the lower end of the market at this point, but given the company’s deep pockets and its strategy, it’s best not to underestimate it in this area.
Applying AI to its e-commerce platform is another possibility. The company has already introduced some AI initiatives, such as making it easier for third parties to create listings through a new AI listing tool where all a customer needs is a URL to their existing website. AI can be applied to many areas of the business, from better product recommendations, to better product search, to helping improve logistics and inventory management.
Cheap stock
Given Amazon’s willingness to spend money building out its logistics network and data centers, my preferred method of valuing the company is to use an enterprise value (EV)-to-EBITDA multiple. This takes into account the company’s net debt, but ignores non-cash items such as depreciation. This metric reflects a company’s cash generation ability and operating efficiency, while also taking into account its debt and cash balances.
From that perspective, the stock trades at an attractive 13.5 times forward multiple. That’s much lower than the 24x multiple it traded at in the recent past.
While Amazon isn’t exactly an AI winner, the company is investing heavily in this area. Meanwhile, history has shown that the company is willing to spend a lot to gain a lot in the long run.
With these growth stocks trading at a historic discount and a major AI opportunity on the horizon, now is a great time to invest $5,000, or whatever amount is best for you.
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Suzanne Frey, a director 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 holds positions in and recommends Alphabet, Amazon, Apple, Nvidia and Walmart. The Motley Fool has a disclosure policy.
The Ultimate Growth Stock You Can Buy Right Now with $5,000 was originally published by The Motley Fool
