Amazon’s AI success sends stock racing towards US$3 trillion club

[CHICAGO] Investors are growing increasingly optimistic about Amazon’s position in artificial intelligence, lighting a fire under the stock and sending the company’s market capitalisation soaring towards the rarefied US$3 trillion level.

Stephen Lee, founding principal at Logan Capital Management, which owns Amazon shares, said: “We have a lot of confidence that (its) AI strategy is working, and that it will continue to pay dividends in the form of strong growth over the coming years.”

The stock has been on a tear since bottoming on Mar 27, with its 36 per cent gain in that span making it the fourth-largest point contributor to the S&P 500 Index, accounting for 7.4 per cent of the benchmark’s 17 per cent advance, based on data compiled by Bloomberg.

Amazon’s 27 per cent leap in April marked its best month since 2007. 

The cloud-computing and e-commerce giant has a market value of more than US$2.9 trillion after adding US$438 billion this year.

If the rally goes a bit further, it will join Nvidia, Alphabet, Apple and Microsoft in the exclusive group of companies that are worth more than US$3 trillion.

Amazon’s resurgence comes after an extended period of underperformance. The stock is up 71 per cent over the past five years, well below the 124 per cent jump by the tech-heavy Nasdaq 100 Index in that time, and even falling short of the S&P 500’s 81 per cent gain.

The rebound reflects investor’s rising confidence that it has multiple paths to succeed with AI.

Its latest results showed the fastest quarterly sales growth for its Amazon Web Services (AWS) cloud-computing business in more than three years, a sign that AI demand continues to be robust.

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In addition, Amazon said it has “over US$225 billion in revenue commitments” for its Trainium custom AI chips.

Lee added: “AWS is showing great growth, and the demand for its bespoke chips is not only positive for revenue but suggests it could gain some independence on its compute costs, which would represent a real price advantage.”

These developments are helping to justify the heavy spending Amazon is continuing to make in developing AI, which is important as investors sell shares of big AI spenders with more questionable outcomes, such as Microsoft and Meta Platforms. 

‘Compelling combination’

“All of Amazon’s businesses feed into each other, and being good at AI will not only help with AWS, but mean massive advantages for logistics and ad targeting at its e-commerce business,” Lee said.

“It should be a significant winner of both the AI infrastructure buildout, as well as a significant winner of AI usage, and that’s a very compelling combination.”

The company’s AI investments are working out too. One of its biggest positions is in Anthropic, which is reportedly in talks to raise new capital at a valuation of more than US$900 billion.

In February, it agreed to invest US$50 billion in OpenAI alongside a commitment for the ChatGPT maker to spend US$100 billion on AWS over the next eight years.

As a result of all this, Wall Street is growing more confident about Amazon.

Of the 83 analysts tracked by Bloomberg who follow the company, 79 have “buy” ratings and none have “sell” ratings. That is the highest percentage of buys among megacap stocks. The average price target of US$313 anticipates a 16 per cent gain over the next 12 months.

The consensus estimate for its 2026 earnings per share has risen by 14 per cent over the past month, based on data compiled by Bloomberg, and its revenue projection has also moved higher.

The increases are making the shares look relatively cheap at less than 25 times estimated earnings, a significant discount to their 10-year average of 46. In late March, the multiple fell to its lowest since late 2008.

However, not everyone is sold on the stock’s prospects from here, especially as long as Amazon continues to spend aggressively on AI. The company has the highest 2026 capex projection in the S&P 500, nearing US$200 billion. And that figure is expected to balloon to US$226 billion in 2027. 

“There are still huge question marks around what return it will get on all this AI spending,” said Tom Graff, chief investment officer at Facet.

“There could be an upside cap on the multiple so long as the capex story continues, because it will no longer have the same margins it enjoyed when it was a big cash-flow generator.”

Although Facet owns Amazon shares, Graff described himself as sceptical and said the stock has an underweight rating in the firm’s portfolios.

“Ultimately, I see more scenarios where it underperforms rather than outperforms,” he said. “There is a lot that would have to go right, and in a world where I’m trying to balance risk and reward, I just see more risk here.” BLOOMBERG