Amazon (NASDAQ: AMZN) may not always be at the top of the artificial intelligence (AI) investments list, but it certainly deserves its place there. Amazon may have a bit of a branding problem here, as once people see Amazon, they automatically think of commerce. But the company is a lot more than that.
Despite that association, Amazon is a great AI investment, and anyone looking to devote a portion of their portfolio to AI should highly consider Amazon. Plus, its diversification into other industries makes for a strong pick in general.
Amazon’s Anthropic investment is key for survival in cloud computing
The term “AI” is very broad, but it has exploded in use in recent years. That’s because AI has shifted from trend-predicting usage to digital assistant thanks to the rollout of large language models (LLMs) like ChatGPT. These generative AI models set the stage for digital assistants that can improve the speed of accomplishing various tasks.
Anthropic is a company with a popular LLM, its Claude model. Amazon has made some significant investments in this company and recently announced that it completed its $4 billion investment with Anthropic. This is key, as it gives Amazon a generative AI partner to complement its Amazon Web Services (AWS) cloud computing product.
Two of Amazon’s and Anthropic’s primary competitors are Microsoft Azure, which partnered with OpenAI to utilize its ChatGPT model, and Alphabet‘s Google Cloud, which developed its internal Gemini model. Without a partnership like this, AWS would have looked less attractive than the two smaller competitors and risked losing market share. Now, Amazon has a solid choice for customers to use, keeping it in contention in the cloud computing market.
But that’s not the only way Amazon has incorporated AI into its business.
The commerce side of Amazon has used AI for a while
Moving back to a more traditional definition of AI, Amazon has deployed various AI algorithms to solve problems within its commerce division. Through its proprietary packaging decision engine, Amazon developed a model to understand exactly what type of packaging is needed for a product. This cuts waste, as an employee packaging the products may decide to use a larger package when that’s unnecessary.
For clothes on Amazon, the company developed an AI model to understand how various products fit based on customer feedback so it can give customers a fit recommendation. This is critical, as it reduces the number of returns and exchanges, which lose Amazon money.
Amazon has deployed AI in several ways to improve the company. With its partnership with Anthropic to ensure AWS has the tools it needs to give clients access to powerful generative AI models, Amazon is a top AI investment candidate.
However, the company has some distance to go before being attractively priced based on conventional valuation metrics.
Amazon’s stock looks expensive, but there’s a catch
Because there’s a lot of transformation going on in the market, using a stock’s forward price-to-earnings (P/E) ratio is a good idea, as it considers how much analysts think the company will grow over the next 12 months.
For Amazon, it holds a rather expensive price tag at 44 times earnings.
With Amazon being priced higher than Nvidia (35 forward P/E) or Microsoft (36 forward P/E), investors might wonder why they should invest in Amazon over those two.
The biggest factor here is that Amazon is still optimizing its profitability on its commerce side. While the North American commerce segment steadily improved profitability in 2023, the international division continued to post operating losses. Furthermore, AWS didn’t have a great growth year due to customers optimizing their spending.
As a result, Amazon still has a ways to go before achieving maximum profitability, so taking a P/E ratio at face value is unwise. Because of that, I still think Amazon is a strong investment here, as it continues to improve each of these divisions quarter after quarter. Analyst projections (which are vital for the forward P/E ratio) may be conservative if Amazon can continue to improve the margins on each one of its divisions.
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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
