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Of all the Cloud Czars, the one with the most potential for growth is Amazon.Com (NASDAQ:AMZN). AMZN stock investors should remember this.
The question for investors is whether Amazon will achieve that potential.
Amazon is much more than the world’s second-largest retailer after Walmart (NYSE:WMT). It dominates the cloud market with a 30% market share. It dominates the streaming market with the Fire streaming stick and three streaming services.
Can this continue in the age of Artificial Intelligence (AI)?
Why Nvidia Blew By
Nvidia (NASDAQ:NVDA) blew past Amazon in market cap for a simple reason. It can make more money selling chips than Amazon can selling shoes. Nvidia is a software company. Amazon is an infrastructure company.
Most of Amazon’s $575 billion in revenue last year came from retailing, which has very small margins. AWS accounted for about $90 billion of revenue, but its operating income was just $7 billion. Nvidia reported over half its $22 billion in fourth quarter revenue as net income.
AMZN stock is having to spend like mad to stay ahead of its rivals. The company put over $50 billion into capital spending in 2023, more than half its operating cash flow. That number will keep rising. Just this quarter it announced a $5.3 billion data center in Saudi Arabia, and another $5 billion system in Mexico.
Double Edged Sword
For Amazon, AI is a double-edged sword.
AI does increase business for Amazon Web Services, the market-leading cloud. The company’s strategy is to remain agnostic, offering support for all AI foundations and models, including Mistral. It’s also making strategic investments in systems like Anthropic.
Amazon can also use AI to improve its own systems, using its own data. Its new Rufus shopping bot shows ownership of training data is invaluable in the AI age. It can also help AWS customers use their own data to improve their bots, as with QnAIntent.
But Amazon is well behind the fraudsters using AI tools to create fake books. Many crooks still use Amazon as a fence for stolen goods. There are also growing worries, even from within Amazon, that Generative AI (GenAI) systems like ChatGPT are overhyped.
Bears Come Out
I’m old enough to remember when e-commerce was new. Now it’s just commerce.
That means there are Amazon clones around the world like Mercado Libre (NASDAQ:MELI). There are companies like Pinduoduo (NASDAQ:PDD), which owns Temu, running rings around Amazon.
In the U.S., Walmart and now Target (NYSE:TGT) have copied Prime, its subscription shipping service. While Amazon isn’t “just” a retailer, its retailing revenue may be overvalued, say the bears.
Bears also worry that Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) are about to overtake AWS.
Secret Weapon
AMZN stock had $14.65 billion of ad revenue in the fourth quarter. This is its secret weapon.
That’s because Amazon TV ads are addressable, something broadcast and cable ads aren’t. You can know who’s watching them. That’s why Amazon is putting ads on Prime, to go along with its free FreeVee service. (It also offers an ad-free streamer called MGM+, at $7/month). The Fire TV stick controls access to other streaming services, which pay to advertise on it.
Ads are why Deutsche Bank (NYSE:DB) recently raised its price target on Amazon to $210 per share.
The Bottom Line
Like Apple (NASDAQ:AAPL), Amazon is a stock you own, not one you buy. We haven’t even talked about healthcare. We haven’t talked about banking. Advertising is just getting started.
I’ve had Amazon shares for over a decade, and I’m not selling. There’s still too much upside, still too many opportunities, for me to consider leaving it just yet.
As of this writing, Dana Blankenhorn had LONG positions in MSFT, AAPL, GOOGL, NVDA, and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.
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