A Once-in-a-Decade Investment Opportunity: 1 Brilliant AI Stock Down 23% to Buy Before It Soars, According to Wall Street

Andy Jassy, CEO of Amazon (NASDAQ: AMZN), recently told analysts artificial intelligence (AI) was "probably the biggest technology shift and opportunity in the business since the internet." That alone puts investors in front of a significant opportunity.

However, Amazon stock has declined 23% from its record high, pulling the price-to-earnings ratio down to its cheapest multiple in the past decade. But most Wall Street analysts anticipate a strong rebound in the next year. The median target price of $250 per share implies 34% upside from the current share price of $186.

Here's what investors should know about Amazon.

Amazon is using artificial intelligence to drive growth across retail, advertising, and cloud computing

Amazon is a triple threat. It runs the largest e-commerce marketplace outside of China, which is supported by a logistics network that handles more volume than FedEx and UPS. It is the third largest ad tech company due to its ability to source shopper data. And Amazon Web Services (AWS) is the leader in public cloud services as measured by customers and revenue.

Importantly, Amazon is using artificial intelligence (AI) across all three business segments to drive revenue growth and improve operating efficiency. Listed below are specific examples.

• E-commerce: Amazon has built or is building about 1,000 generative AI applications for its retail business, according to CEO Andy Jassy. That includes tools to optimize inventory allocation at its warehouses, assist sellers in listing items on the marketplace, and provide quality customer support. The company also uses natural language processing to let workers engage fulfillment center robots conversationally.
• Advertising: Amazon offers generative AI tools that help brands create ad campaign content for different types of media, including audio, image, and video. Also, its ad tech software leans on machine learning models informed by shopper data to help advertisers target product recommendations and optimize campaign outcomes.
• Cloud computing: AWS has designed custom chips called Trainium and Inferentia that provide a cheaper alternative to Nvidia GPUs for AI training and AI inference. It also provides development platforms called SageMaker and Bedrock, services that support the creation of machine learnings models and generative AI applications, respectively. Finally, its conversational assistant Amazon Q helps knowledge workers and software developers work more productively.

Grand View Research estimates that through 2030 retail e-commerce sales will grow at 11% annually, digital ad sales will increase at 15% annually, and cloud services sales will increase at 20% annually. Collectively, that gives Amazon a good shot at revenue growth in the mid-teens through the end of the decade.

Image source: Getty Images.

Amazon stock recently slipped to its cheapest valuation in the past decade

Amazon reported strong financial results the fourth quarter. Sales increased 10% to $187 billion, operating margin expanded 3 percentage points, and GAAP net income increased 86% to $1.86 per diluted share. That momentum may slow in the near term as Amazon continues to invest in AI infrastructure and navigate changes in U.S. trade policy, but the stock still looks oversold.

Widespread pessimism in the U.S. stock market recently dragged Amazon's price-to-earnings (P/E) ratio down to 30, the cheapest valuation at any point in the past decade. The multiple has since rebounded modestly to 33 times earnings, but it still looks quite reasonable when Wall Street expects earnings to grow at 16% annually through 2026. That is especially true because Amazon beat the consensus estimate by an average of 22% in the last four quarters, according to LSEG.

Here is the bottom line: Amazon's recent financial results show the company is successfully executing on opportunities in e-commerce, digital advertising, and cloud computing, and AI is shaping up to be an important tailwind across all three businesses. Add to that a P/E multiple near its 10-year low and Amazon is a no-brainer buy for patient investors.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, FedEx, and Nvidia. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.