Boosted by the AI boom, Amazon’s (NASDAQ:AMZN) highly profitable cloud business continues to grow very rapidly. Moreover, statements by CEO Andy Jassy and a stock analyst provide evidence to support my bullish thesis about the firm’s healthcare business.
For long-term investors, the company’s guidance miss that caused the shares to retreat recently is not at all worrisome. Finally, information revealed about the share sales of Amazon founder and former CEO Jeff Bezos is bullish for the stock. Given these points, I advise investors to buy Amazon stock.
The Cloud Business Is Firing on All Cylinders
The revenue of Amazon’s cloud unit, AWS, jumped 19% last quarter versus the same period a year earlier to $26.3 billion, while its operating income jumped 75% year-over-year to $9.3 billion. Of course, for any sizeable business, a 75% surge in operating income of 75% is quite impressive.
Jassy explained that the unit is benefiting from the decision by many companies to largely stop cutting IT costs. Moreover, many firms are moving their data from their offices to the cloud, enabling them to save money, innovate more quickly and save their computer programmers time. Also importantly, IT departments still spend 90% of their funds in their offices, so there’s a great deal of room for cloud spending to soar over the long term, Jassy reported.
On the AI front, Jassy encouragingly reported that the company is “seeing significant demand” for its AI training chip Trainium, and for its inference chip Inferentia.
Meanwhile, the firm’s Bedrock AI development service, which gives companies models that enable them to easily build their own AI systems, “has tens of thousands” of customers, Jassy said.
And boding well for Bedrock’s outlook, the offering “has the largest selection of models (and) the best generative AI capabilities in critical areas.” The CEO noted that the adoption of Q, the company’s AI-powered programming and data analysis tool, continues to grow rapidly. Finally, he reported that the company’s generative AI business “is in its very early days,” suggesting that the company’s AI revenue is poised to boom tremendously over the long term.
Positive Signs About the Healthcare Business
On the company’s earnings call, Evercore ISI analyst Mark Mahaney told Jassy that “survey work suggests to us that there’s kind of greater consumer interest” in the company’s pharmacy business, Amazon Pharmacy. Honestly, I was gratified to read that statement, since over the last year or so I’ve theorized the nascent business can positively move the needle for Amazon and Amazon stock.
Jassy’s answer indicates the pharmacy business has been very successful. He stated it “has grown really quickly” and that consumers love the customer experience of Amazon Pharmacy.
Providing more evidence that the business is doing well, CNBC anchor Brian Sullivan recently stated his wife, who works in consumer research, said that Amazon is taking significant market share from brick-and-mortar drug stores.
The Guidance Miss and Bezos’ Stock Sales
Amazon provided Q3 revenue guidance of $154 billion to $158.5 billion. The midpoint of the range was slightly below analysts’ average estimate of $158.2 billion. The miss appears to have been caused by lower average selling prices in the e-commerce business. The latter phenomenon, in turn, was caused by value-conscious consumers looking for bargains.
But with the cloud unit’s profits soaring and Amazon Pharmacy likely to be a major, positive catalyst within the next year, long-term investors should not worry about the company’s slight revenue guidance miss.
Finally, according to Barron’s, Bezos was selling Amazon stock in July but stopped doing so once the share price fell below $200. That suggests that with shares trading down, the company’s current valuation is quite attractive.
On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
