Artificial intelligence (AI) stocks have been driving stock market performance in recent years, and investors have cheered growth in the space. But to keep this growth story going, tech giants have to invest heavily, and that’s exactly what they’ve been doing over the past several quarters. This investment, totaling hundreds of billions of dollars, has gone into the infrastructure build-out, with cloud players and other “hyperscalers” building data centers and furnishing them with equipment.
Amazon (NASDAQ:AMZN), as the owner of Amazon Web Services (AWS), is one of these players. This week, the company reported earnings that fell short of estimates, and negative free cash flow was also deeper than expected. On top of this, Amazon says it aims to “spend meaningfully more” next year.
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The news sent the stock lower in the following trading session, and this is after Amazon’s 14% drop from a high back in August. Now, here’s why this player is a once-in-a-decade buy hiding in plain sight.
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Amazon’s e-commerce dominance
So, first, let’s catch up on the Amazon story so far and its presence in AI. This company is probably best known for its e-commerce business, as many of us shop on Amazon daily for groceries and other essentials or turn to the platform for entertainment in the form of books and movies. The Prime subscription program, offering fast delivery and other perks, has kept customers loyal and the revenue engine going.
Meanwhile, AWS has become the company’s main profit driver over the years — and now, the AI opportunity is supercharging growth. AWS is the world’s No. 1 cloud services provider, making it the natural choice for customers that already use the platform for non-AI services. For AI, they come to AWS for any of their needs, from AI chips to large language models and agentic AI.
Due to this, AWS has delivered explosive growth in recent quarters, and performance in the third quarter extended this trend. The cloud unit reported 39% revenue growth to $46 billion, beating analysts’ estimates.
However, to generate such growth today and into the future, Amazon has prioritized investing in the AI build-out. During the latest quarterly report, the company kept its capital spending forecast for the year at $220 billion, but as I mentioned above, it said it will keep up the aggressive spending next year. Amazon reported negative free cash flow of $42 billion in the trailing 12 months as it paid for property and equipment.
