Analysts Spotlight Amazon as the Undervalued AI Leader

Amazon (NASDAQ: AMZN) is emerging as a top contender in the artificial intelligence (AI) space, according to analysts who argue that the company is significantly undervalued. While stocks like Nvidia and Palantir Technologies have seen substantial gains, Amazon's shares have lagged behind the S&P 500 index over the past five years, rising only 51% compared to the index's 88% gain.

Evercore's Mark Mahaney highlights Amazon Web Services (AWS) as a key driver of growth, with a price target of $355 for Amazon stock, which currently trades around $250. AWS revenue grew 37% year over year to $42.2 billion last quarter, benefiting from the AI infrastructure boom. Amazon is positioning AWS as the preferred platform for AI services, even though it has chosen not to develop its own cutting-edge AI model.

Beyond AWS, Amazon is integrating AI into its e-commerce, retail, and services divisions. AI search tools are improving customer experience, while automated advertising and supply chain enhancements, including drone delivery, are expected to boost efficiency and margins. Amazon's North America retail business grew 16% last quarter to $116 billion, with investments in automation and AI aimed at expanding margins over the long term.

Analysts view Amazon as a cheap stock despite its $2.7 trillion market cap. AWS alone has an annualized revenue rate (ARR) of $169 billion, with potential to reach $232 billion by this time next year. Combined with the rest of Amazon's business, the company could generate $161 billion in total earnings, suggesting a forward earnings multiple of just 17, which indicates undervaluation.