Investors are growing increasingly optimistic about Amazon.com Inc.'s position in artificial intelligence, lighting a fire under the stock and sending the company's market capitalization soaring toward the rarefied US$3 trillion level.
The stock has been on a tear since bottoming on March 27, with its 36 per cent gain in that span making it the fourth-largest point contributor to the S&P 500 index, accounting for 7.4 per cent of the benchmark's 17 per cent advance through Wednesday's close, according to data compiled by Bloomberg. Amazon's 27 per cent leap in April marked its best month since 2007.
“We have a lot of confidence that Amazon's AI strategy is working, and that it will continue to pay dividends in the form of strong growth over the coming years,” said Stephen Lee, founding principal at Logan Capital Management, which owns Amazon shares.
Market value approaches US$3 trillion
The cloud-computing and e-commerce giant has a market value of US$2.9 trillion after adding US$432 billion this year. If the rally goes a bit further, it will join Nvidia Corp., Alphabet Inc., Apple Inc. and Microsoft Corp. in the exclusive group of companies that are worth more than US$3 trillion.
Amazon's resurgence comes after an extended period of underperformance. The stock is up 65 per cent over the past five years, well below the 121 per cent jump by the tech-heavy Nasdaq 100 index in that time and even falling short of the S&P 500's 79 per cent gain.
AI-driven growth in AWS and custom chips
The rebound reflects investor's rising confidence that Amazon has multiple paths to succeed with AI. Its latest results showed the fastest quarterly sales growth for its Amazon Web Services cloud-computing business in more than three years, a sign that AI demand continues to be robust. In addition, Amazon said it has “over US$225 billion in revenue commitments” for its Trainium custom AI chips.
“AWS is showing great growth, and the demand for its bespoke chips is not only positive for revenue but suggests it could gain some independence on its compute costs, which would represent a real price advantage,” Lee said.
These developments are helping to justify the heavy spending Amazon is continuing to make in developing AI, which is important as investors sell shares of big AI spenders with more questionable outcomes, such as Microsoft and Meta Platforms Inc.
“All of Amazon's businesses feed into each other, and being good at AI will not only help with AWS, but mean massive advantages for logistics and ad targeting at its e-commerce business,” Lee said. “It should be a significant winner of both the AI infrastructure buildout, as well as a significant winner of AI usage, and that's a very compelling combination.”
Amazon's AI investments are working out too. One of its biggest positions is in Anthropic PBC, which is reportedly in talks to raise new capital at a valuation of more than US$900 billion. And in February, it agreed to invest US$50 billion in OpenAI alongside a commitment for the ChatGPT maker to spend US$100 billion on AWS over the next eight years.
