Amazon's AI Growth and Low Valuation Signal Potential Rally

Key points

• Amazon's stock has risen 65% since 2024, slightly outperforming the S&P 500's 63% gain.
• The company's current earnings multiple is significantly lower than its 50x average over the past decade.
• AWS grew 37% in the June quarter, while overall revenue grew 20%.
• Amazon's chip and AI businesses are growing at triple-digit rates, with annual revenue run rates exceeding $25 billion each.
• The Motley Fool argues Amazon is overdue for a rally due to its strong AI growth opportunities and low valuation.

Background

The 'Magnificent Seven' tech stocks have been a primary driver of market performance, with Nvidia leading the group at a $5.8 trillion valuation. Recent market dynamics have shown a narrow rally concentrated in high-liquidity AI leaders, despite broader market weakness and rising Treasury yields. Amazon, as a key member of this group, has seen its stock rise 65% since 2024, slightly outperforming the S&P 500's 63% gain over the same period. The company's strong performance in AWS and its emerging AI and chip businesses have positioned it as a potential candidate for a significant price increase, according to The Motley Fool.

Why it matters

Amazon's undervaluation relative to its historical norms and strong AI growth potential could signal a significant price increase, making it a strong candidate for a rally. This could impact the broader market and the 'Magnificent Seven' tech stocks, which have been a primary driver of market performance.

What to watch

Investors may consider buying Amazon stock as a long-term investment, given its strong AI growth opportunities and low valuation. The company's continued growth in AWS and its emerging AI and chip businesses could drive a significant price increase.