Amid Strong, Positive Catalysts and the Endorsement of Goldman Sachs, Amazon Stock Looks Very Attractive
Amid Strong, Positive Catalysts and the Endorsement of Goldman Sachs, Amazon Stock Looks Very Attractive.
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Amazon's (AMZN) ability to profit substantially over the longer term from its growing satellite system and the continued, rapid expansion of AI make AMZN stock worth buying for patient investors.
Further, Goldman Sachs recently urged investors to purchase the shares. The name is trading at a relatively low valuation, compared with its powerful, positive catalysts and historical norms.
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Amazon now has almost 400 satellites in space, and the conglomerate is preparing to launch satellite-based internet service this year. Within the next few years, the services enabled by these satellites should lift the company's top and bottom lines considerably.
Indicating that AMZN can provide internet service from its satellites much more cheaply than land-based alternatives, the company has bid much less than fiber and cable providers for grants that will be given to broadband providers. Since cheaper options usually become much more prevalent than more expensive ones, Amazon's satellite-based internet service should grow very rapidly in 2027 and 2028.
Additionally, the U.S. government is looking to rapidly increase its utilization of satellite communications, and AMZN has already won multiple deals from Washington in this area.
Finally, the tech giant earlier this year bought Globalstar (GSAT). As a result of the acquisition, Amazon will in the future likely be able to provide voice and data services from its satellites directly to conventional smartphones and other connected devices, including autonomous vehicles, semi-autonomous vehicles, and robots.
Since satellites can enable smartphones and other devices to be utilized anywhere on Earth, such direct-to-device services, as they are known, should prove to be very popular among consumers, businesses, and governments. Indeed, indicating that telecom companies expect D2D to be very widely used, Ast Spacemobile (ASTS), which also plans to offer D2D, has already signed deals cumulatively worth many hundreds of millions of dollars from such companies.
In the first quarter, the revenue of Amazon's cloud unit, AWS, jumped 28% versus the same period a year earlier to $37.6 billion. The surge was in large part due to intense demand for AWS' AI services.
As the utilization of AI globally continues to climb and Amazon starts selling its AI chips to other firms, the conglomerate's AI-related revenue should rise rapidly in the longer term.
Amazon's partnership with super startup Anthropic, one of the leading developers of AI models whose annualized revenue run rate was already closing in on $20 billion as of March, should also help AMZN increase its AI revenue and its overall profits tremendously over the next few years.
The conglomerate has already invested $13 billion in the startup and has an option to add another $20 billion to that total. For its part, Anthropic has agreed to spend more than $100 billion in the next decade on AWS' offerings.
In a note to investors on July 1, Goldman recommended that investors buy the shares of several U.S. hyperscalers, including AMZN, ahead of their earnings reports. According to the investment bank, these stocks are now attractive because their valuations have dropped even as their earnings have continued to grow.
The price-to-earnings ratio of Amazon is currently 33.99 times. That's quite low, given its powerful, positive catalysts, and it's well below AMZN's historical valuation trend. Consequently, I agree with Goldman Sachs' advice.
On the date of publication, Larry Ramer had a position in: AMZN, AMZU, ASTS. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
