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Amazon is still capable of growing profits and cash flow at high double-digit rates.
The cloud business will be a key catalyst in driving profitable growth over the next several years.
The long-term opportunities in artificial intelligence (AI) and cloud computing represent trillions of dollars in addressable market value. Investors can gain exposure to these megatrends by investing in Amazon (NASDAQ: AMZN), which is currently trading at its lowest cash-flow multiple in over a decade, making it one of the best growth stocks to buy for the long term.
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Amazon shares have historically traded at a multiple of cash from operations per share above 25, but shares are currently trading at a multiple of 18. This valuation reflects slowing growth in Amazon's e-commerce business, but analysts expect Amazon's profits to grow at an annualized rate of 18% over the next several years. Amazon's lead in the cloud computing market remains one of the company's most significant long-term growth opportunities that investors are underestimating.
Over 100,000 companies are using generative AI applications powered by Amazon Bedrock, a component of Amazon Web Services (AWS). AWS is now generating $132 billion in annualized revenue, which accounts for two-thirds of Amazon's operating profit.
The stock's current valuation underestimates the growth potential of AWS, particularly as demand for AI tools drives more businesses to migrate their data to leading cloud platforms. AWS offers access to powerful chips and data centers that smaller companies cannot afford to build on their own. The opportunity in cloud services should drive excellent returns for Amazon investors over the next decade.
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John Ballard has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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