Amazon's AI Business Surpasses $25 Billion Revenue Run Rate

Amazon's AI business inside its cloud computing division AWS has reached a significant milestone. In its latest earnings report, Amazon announced that its AI line has surpassed a $25 billion annual revenue run rate. This growth rate is triple-digit year over year, making it one of the fastest-growing segments within AWS.

AWS as a whole grew 37% in the second quarter to $42.2 billion, with its operating margin expanding from about 33% to about 39%. The company's AI business is driving much of this growth, and its accelerating pace has implications for Amazon's overall stock value by 2031.

Assuming the AI line doubles in revenue twice more by 2031, it would reach around $100 billion. Meanwhile, the rest of AWS could grow from its current $169 billion annualized run rate to between $250 billion and $290 billion. This would put AWS at a combined value of $350 billion to $390 billion by 2031.

The operating margin for AWS is crucial in determining its potential worth. If it holds onto the 39% margin seen in the second quarter, the segment could produce around $140 billion in annual operating income by 2031. This is a significant number considering Amazon's entire company generated $27.5 billion of operating income last quarter.

The stock price currently assumes strong growth, with Amazon trading at about 28 times forward earnings. However, this assumption may be more reasonable than it seems given the accelerating pace of AWS and its AI business.