Amazon's $25 Billion AI Business Sparks Stock Price Revaluation

Amazon's AI business has hit a significant milestone, passing a $25 billion annual revenue run rate within its Amazon Web Services (AWS) segment. This growth is not only impressive but also accelerating, with AWS reporting its fastest net sales growth in 18 quarters at 37% year-over-year.

The operating income for AWS reached $16.6 billion in the second quarter, a 64% increase from last year's $10.2 billion, expanding its operating margin to about 39%. The company's backlog of contracted work also stands at $496 billion, indicating strong demand years out.

Assuming the AI business doubles twice more by 2031, it would reach around $100 billion in annual revenue, while the rest of AWS could grow from $144 billion to between $250 billion and $290 billion. This would put AWS' total value at approximately $350 billion to $390 billion.

With a market value of around $2.82 trillion, Amazon's stock price is currently trading at about 28 times forward earnings. To reach the projected values by 2031, the company would need to maintain its current operating margin and continue growing its AI business.