Amazon (AMZN) Gains From Generative AI-Driven AWS Momentum

June 12, 2024

25 3 minutes read

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Amazon’s AMZN shares have gained 23.1% on a year-to-date basis, outperforming the Zacks Internet Commerce industry’s return of 17%. The company is riding on the solid momentum in its cloud computing arm, Amazon Web Services (“AWS”).

AWS has been benefiting from its strengthening generative AI capabilities.

The solid adoption of Amazon Bedrock, which has provided AWS with a breakthrough in the generative AI space, is a major positive. Amazon Bedrock offers seamless access to high-performing foundation models from AI companies through an API.

AWS also offers Amazon CodeWhisperer, which is designed to provide generative AI-powered customized code suggestions.

The company’s recent collaboration with NVIDIA, through which it will make the latter’s Blackwell GPU platform available on AWS, is a plus. This will aid in speeding up inference workloads for resource-intensive, multi-trillion-parameter language models.

AWS’s growing generative AI efforts are expected to aid Amazon in capitalizing on the immense growth prospects in the generative AI market, which, per a report from Allied Market Research, is anticipated to hit $191.8 billion by 2032, witnessing a CAGR of 34.1% between 2023 and 2032.

Amazon.com, Inc. Price and Consensus

Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote

Strong Clientele Aids Growth

Strong generative AI capabilities, coupled with AWS’s other robust cloud solutions, expanding data center network, and an increasing number of infrastructure regions and Availability Zones, are bolstering its customer base.

This is evident from the latest partnership between Formula 1 (F1) and AWS. Per the terms, the former intends to introduce a generative AI-designed F1 trophy for the Canadian Grand Prix with the support of AWS.

SAP’s SAP recent collaboration with AWS is also noteworthy. SAP intends to embed generative AI solutions across its enterprise resource planning applications with the help of AWS.

SAP will integrate generative AI models from Amazon Bedrock, such as the Anthropic Claude 3 model family and Amazon Titan, into its generative AI hub in SAP AI Core.

NinjaTech AI partnered with AWS to launch its next-generation AI agent called Ninja, which has been trained using the latter’s machine learning chips Trainium and Inferentia2.

CrowdStrike and BlackBerry are other notable customers, which are using Amazon Bedrock to accelerate their business innovation. Brightcove is another customer leveraging Amazon Q Business on AWS.

We believe that AWS’s expanding customer base will continue to drive its top-line growth. In first-quarter 2024, AWS generated revenues of $25.04 billion (18% of the total sales), which grew 17% year over year.

The strengthening performance of AWS will drive the Zacks Rank #3 (Hold) company’s overall performance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for 2024 revenues is pegged at $638.24 billion, indicating year-over-year growth of 11%. The same for 2024 earnings stands at $4.58 per share, implying a year-over-year rise of 57.9%. The EPS estimate has moved north by 1.1% over the past 30 days.

AWS Clientele Growth Aids Competitive Position

Expanding clientele will continue to help AWS sustain its dominant position in the global cloud market and gain a competitive edge against its peers, namely Microsoft MSFT and Alphabet’s GOOGL Google.

Amazon accounted for 31% of the worldwide cloud provider market in first-quarter 2024, per the latest Canalys data.

Microsoft, which accounted for 25% of the market, is riding on solid momentum across its Intelligent Cloud business that reported $26.7 billion in revenues in third-quarter fiscal 2024 (43.2% of the total revenues), up 21% year over year. The business is benefiting from the robust adoption of Azure, driven by strength in Azure AI. Azure and other cloud service revenues grew 31% year over year.

Google Cloud is contributing substantial growth to Alphabet’s total revenues. Expanding data centers, availability zones and cloud regions are expected to keep boosting the company’s cloud position. Alphabet’s Google Cloud acquired 10% of the market and reported revenues of $9.6 billion (11.9% of the total revenues), up 28.4% year over year in first-quarter 2024.

Conclusion

Amazon is riding on AWS’s expanding clientele and strong partner base. Deepening focus on generative AI is a major plus that is helping it maintain its dominant cloud position. In addition to the cloud, strong capabilities, especially in grocery and pharmacy retail, coupled with ultrafast delivery services, are boosting its e-commerce prospects. The growing footprint in the video streaming space with Prime Video is another positive.

Amazon currently has a Value Score of B, which makes it an attractive pick for investors.

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