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Amazon (AMZN) stock has not been able to steer clear of broader market volatility, with the stock sinking as low as 15% off its 52-week highs of nearly $146 per share before bouncing back modestly. Today, shares of the e-commerce and cloud darling are down around 13% from those early August highs - and plenty of analysts seem to think the dip is worth buying into, as the company continues innovating on numerous fronts.
Indeed, it's been quite a recovery year for Amazon stock, which is up nearly 49% year to date. Though shares are still over 33% off the all-time highs set in 2021 - thanks in part to overinvestment in capacity amid short-lived pandemic tailwinds - I do view the newer highs as breachable over the medium term, especially as the company looks to put the finishing touches a couple of new growth drivers.
Generative AI Could Drive Growth
First, Amazon is betting big on generative artificial intelligence (AI). Its voice assistant, Alexa, is due to get smarter and more useful with some generative AI updates. Further, its own large language model (LLM), Titan, could be a game-changer, as it also looks to gain ground on its fully-managed AI service, Bedrock.
Amazon doesn't just have a nice, growing stake in AI; it seems to be diversifying its bets across the board by not only offering consumers some capable generative AI (via Alexa), but offering yet another service to its enterprise customers with Bedrock. And let's not forget about the automation opportunities at the warehouse (robotics) and in the office (Amazon also has its own code generator).
Additionally, Amazon's recent $4 billion investment in AI firm Anthropic seems to make an otherwise solid AI story that much better. In many ways, Amazon's bet on Anthropic AI seems to mirror Microsoft's (MSFT) bet on OpenAI.
Value-Add from Prime Video Ads
Second, the company is poised to rake in a considerable sum as it starts rolling out ads across its Prime Video service. Until recently, Prime Video has been a nice perk for Prime users who like shopping on Amazon frequently. But over the years, impressive content, including The Boys and its recent spin-off series Gen V, have made Prime Video more of a main attraction than just a side perk.
Heck, amid consumer headwinds, it's not hard to imagine Prime Video is becoming more of a main source of membership stickiness than just a nice-to-have. With Hollywood writer strikes coming to a conclusion, Prime Video looks poised to become an even stronger streaming platform that's probably worth the price of a Prime subscription alone. Amazon likely knows this, and is ready to introduce ads (and another ad-free tier to the service) rather than seeking to hike the price of its Prime membership again amid rising macro headwinds.
Sure, it's annoying to have to sit through ads while enjoying Prime content. However, given the modest price of $2.99 per month to get rid of the ads, I don't think viewers will put up too much of a fuss, as long as the quality content continues coming in at a good rate.
Prime Video ads could mean big money for Amazon, says UBS analyst Lloyd Walmsley. He thinks it could "add $3 billion" to revenue, and that's just a conservative estimate. In the long term, it's hard to tell how much of a jolt ads could give to the stock. Either way, chalk up streaming ads as yet another cash cow for the disruptive tech innovator.
Don't Forget E-Commerce & AWS
Finally, the e-commerce and AWS (Amazon Web Services) cloud businesses could get a boost as the economy looks to turn a corner while generative AI continues advancing. Indeed, various LLMs could help direct more prospective consumers toward Amazon, turning AI into yet another weapon Amazon can wield against its rivals in the retail scene.
Further, the company's recent hiring spree seems to be a good sign of what's to come for the holiday shopping season. And let's not forget about Prime Day!
The Bottom Line on Amazon Stock
Amazon stock has been a turbulent performer in recent years, but things are looking up as the company stays on the cutting edge of AI innovation. It could take some time for consumer trends to turn back in its favor. But until then, the company has plans to unlock new cash flow streams (such as Prime Video ads).
At 40.16 times forward price-to-earnings (P/E), it's hard not to love Amazon, as analysts continue to praise it. All considered, I view the stock's 13% drop off its 52-week highs as enticing for dip buyers.
On the date of publication, Joey Frenette had a position in: AMZN , MSFT . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
