Amazon (AMZN) Rides on AWS Amid Strong Generative AI Efforts

June 3, 2024

31 4 minutes read

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Amazon’s AMZN shares have gained 16.1% on a year-to-date basis, outperforming the Zacks Internet Commerce industry’s return of 11.1%. The e-commerce giant is riding on the solid momentum in its cloud computing arm, Amazon Web Services (“AWS”).

AWS has been riding on an expanding clientele on the back of its strengthening generative AI capabilities. This is evident from its latest partnership with SAP SAP.

Per the terms of this collaboration, AWS and SAP strive to accelerate the implementation of generative AI for various enterprises.

SAP intends to embed generative AI solutions across its enterprise resource planning (ERP) 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 to provide its customers with access to several large language models (LLM) and foundation models (FM).

With the latest partnership, AWS has become the first cloud provider certified to support the SAP portfolio.

SAP, which already uses AWS Graviton3 chips to support SAP HANA Cloud, now plans to leverage AWS Trainium and AWS Inferentia chips to train and deploy future SAP business AI offerings.

Clearly, SAP’s extended collaboration with AWS has added strength to the latter’s clientele.

Amazon.com, Inc. Price and Consensus

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

Solid Generative AI Capabilities: Key Catalyst

Per an Allied Market Research report, the global generative AI market is likely to hit $191.8 billion by 2032, witnessing a CAGR of 34.1% between 2023 and 2032.

AWS’s growing generative AI efforts are expected to aid Amazon in capitalizing on the immense growth prospects in the generative AI market.

AWS is gaining significantly from the solid adoption of Amazon Bedrock, which has provided it with a breakthrough in the generative AI space. 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 by leveraging an organization’s internal codebase.

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.

Expanding Clientele Aids Growth

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

Recently, 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 in order to make them powerful and useful.

CrowdStrike extended its strategic partnership with AWS to accelerate cloud security and AI innovation. It is using Amazon Bedrock and Amazon SageMaker in order to boost innovation in SIEM transformation, and novel cybersecurity AI use cases.

Brightcove started using Amazon’s generative AI assistant called Amazon Q Business on AWS internally for real-world use cases applicable to the enterprise, media and entertainment technology sectors.

BlackBerry recently unveiled a generative AI-backed cybersecurity advisor called Cylance Assistant, which leverages Amazon Bedrock to enable organizations to enhance their cybersecurity operations.

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 Amazon’s overall performance, which currently has a Zacks Rank #3 (Hold). 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 year-over-year growth 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. Its expanding global presence is a positive. Growing capabilities in grocery, pharmacy, healthcare and autonomous driving are other positives. Deepening focus on generative AI is a major plus that is helping it outperform cloud peers, including Microsoft Azure and Google Cloud.

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

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