Amazon at $2 Trillion: What’s Driving the Stock to Record Highs?

1 июл.

Tripled profits, a bet on AI, and a strategy to take on rising rivals from the East have propelled the ecommerce and cloud computing giant to the lofty price tag.


Innovation on Amazon’s Mind

Amazon (ticker: AMZN) hit $2 trillion in market value just before the year clocked out for the first half. In the final week of June, the Jeff Bezos-founded online retailer soared past the formidable milestone, becoming the fifth company to ever breathe the rarefied air beyond $2 trillion.

What’s been driving Amazon stock to line up right after Alphabet (ticker: GOOGL), Nvidia (ticker: NVDA), Apple (ticker: AAPL) and Microsoft (ticker: MSFT)? It’s a mix of fortunate and timely events, and all can be summed up with one word: innovation.

Amazon raked in sky-high profits of $15 billion for the most recent quarter. The figure was up three times from the same quarter last year. More importantly, the company, now under the stewardship of Andy Jassy as chief exec, is pivoting more resources to meet the growing demand for artificial intelligence.

Shifting Focus to Artificial Intelligence

Amazon Web Services (AWS) is the firm’s cloud computing business and also the world’s biggest one. It’s largely the cash cow at Amazon with profit margins as wide as 38%. Now, it’s getting a boost from businesses looking to inject AI into their products and services. The fast-growing AI-focused unit is growing at a “$100 billion annual revenue run rate,” according to Jassy.

For the quarter ended March 31, AWS sales rose 17% to $25 billion, beating forecasts for $24.5 billion and also coming ahead of the previous quarter’s 13% growth pace. It seems that the AI hype is sweeping across the Amazon halls and conference rooms.

Generative AI got praised by Amazon’s chief financial officer Brian Olsavsky as “a multibillion-dollar revenue run rate business for us.” Looking for a meaningful edge doesn’t stop with artificial intelligence.

Pitted Against Temu and Shein

Rising ecommerce competition from the East is forcing the $2 trillion giant to embrace a new line of business — ultra-low-cost goods shipped directly from China. A new discount section is in the works for Amazon.com after smaller rivals Temu and Shein have threatened to slurp up a significant market share.

The new section, according to reports, will be added to the homepage of the retailer’s app. It will be targeting American customers willing to wait nine to 11 days for goods shipped from China warehouses, as opposed to the regular one or two-day delivery time for goods delivered from within the US. Also, each item will get a price tag of no more than 20 bucks.

Temu, owned by PDD Holdings, and China-founded Shein have flooded the internet with cheap stuff and massive discounts thanks to splurging billions of dollars in advertising campaigns.

Amazon, a mainstay in the FAANG stocks list, is among the few companies to be of gargantuan size yet nimble enough to stay relevant in the changing landscape of its industry. Will the pivot to cheap goods succeed in stamping out the aggressive competition from China? Or will the corporate giant be outperformed by the brilliant maneuvering of low-caliber foreign retailers?

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