Amazon Stock Looks Historically Cheap Amid Strong AI Growth
Amazon's stock is currently trading at a historically low valuation relative to its earnings, despite maintaining strong growth prospects, particularly in artificial intelligence (AI). This contrasts sharply with its past high earnings multiples, which often exceeded 50 times earnings. Since the beginning of 2024, Amazon's stock has risen by 65%, barely outperforming the S&P 500's 63% gain, suggesting a potential rally ahead given its growth opportunities.
The company's growth is being driven by Amazon Web Services (AWS), which saw a 37% increase in the June quarter, and its emerging chip business, both of which reported triple-digit growth. These segments are now at annual revenue run rates exceeding $25 billion. With a revenue of $776 billion over the past four quarters, Amazon remains a behemoth but continues to grow, with AI poised to unlock further expansion.
Despite these strong fundamentals, The Motley Fool's Stock Advisor team did not include Amazon in their latest list of top 10 stocks, suggesting other opportunities might offer higher returns. The team's past recommendations, such as Netflix and Nvidia, have yielded significant returns, underscoring the potential for outperformance in other investments.
For long-term investors, Amazon's current valuation and growth prospects make it a compelling candidate for a big rally. However, before investing, it may be worth considering other high-growth opportunities identified by analysts.