Amazon(AMZN)
stock saw a big valuation contraction following the publication of the
company's fourth-quarter results. Sales for the period actually came in
ahead of expectations, but earnings missed the market's forecast. The
business posted non-GAAP
(adjusted) earnings of $1.95 per share on sales of $213.4 billion,
while the average analyst estimate had modeled for per-share earnings of
$1.97 on sales of $211.3 billion.
Despite better-than-anticipated sales performance last quarter,
investors bristled at higher-than-anticipated costs and the tech giant's
guidance for massive capital expenditures (capex) this year. In order
to continue building out its AI infrastructure and pursue other growth
bets, Amazon anticipates spending roughly $200 billion this year.
While the company's massive capital expenditure outlays will put a
substantial damper on the company's near-term earnings, there are good
reasons to continue liking Amazon as an artificial intelligence (AI) stock for the long term.
Image source: Getty Images.
Leadership in the cloud and e-commerce point to big AI opportunities
Amazon Web Services (AWS) continues to lead the cloud infrastructure
market, and last quarter's sales growth of roughly 24% for the segment
topped Wall Street's expectations. AWS should continue to enjoy sales
tailwinds as more AI applications are developed, launched, and scaled
across the platform, and the segment's fantastic operating margin (35%
last quarter) should ensure that the business continues to be a
profit-generating machine.
On the e-commerce side of things, Amazon remains in very early
innings when it comes to leveraging the benefits of AI and automation,
and massive investments in AI and robotics should help the unit
significantly expand margins over the long term. With its huge sales
base, even moderate margin improvements for the online-retail business
could wind up making a huge difference for the bottom line.
While the S&P 500's level has risen roughly 77%
over the last five years, Amazon stock is up just 32% across the
stretch. Pressures connected to pandemic-related issues, inflation, and
rising costs have dampened the stock's performance, but there are good
reasons to believe that its long-term AI opportunities are currently
being discounted by the market.
As the company's huge
capex forecast for this year makes clear, Amazon is not resting on its
laurels. Big investment pushes are going to depress earnings this year,
and it's reasonable to expect that the company will have another huge
round of capital expenditures next year as well.
While intense competition and spending among tech giants in order to
avoid getting left behind in the AI race comes with substantial risks,
Amazon is betting on categories with the potential to deliver huge
payoffs over the long haul. Crucially, the company already has strong
positioning in these categories and the setups to facilitate strong
returns on its large investments. The company's existing foundations and
strengths in cloud infrastructure, e-commerce, and adjacent spaces
position the business to be a big winner over the next decade and
beyond.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
Image source: Getty Images.
