The ubiquitous company is dominating its core business markets and gaining a foothold in others.
Few companies have had a greater impact on how we live our lives day to day than Amazon (AMZN -0.27%). The company completely upended the brick-and-mortar paradigm many of us grew up with. Sure, I still go to the grocery store and the like, but about half the time I need something, I grab my phone and open the Amazon app instead.
Look out your window. I'd be willing to bet there's someone delivering a package bearing that distinctive swooping arrow to one of your neighbors right now. The tech behemoth is everywhere.
And we are creatures of familiarity. Amazon's ubiquity -- and the fact that it almost always delivers exactly what you expect when you expect it -- makes people trust the brand. In fact, Amazon is the most trusted institution in the U.S., more than the military or the Supreme Court. I think it's hard to overstate just how valuable this enormous mind share is. It's one of those intangibles that doesn't show up on a balance sheet but can have a very real impact on the company's business success.
The company is reporting its second-quarter numbers on August 1. Let's consider three of the most compelling reasons Amazon looks like a great pick ahead of the earnings release.
1. E-commerce is still going strong
Amazon's core business is as strong as ever. Much of the focus of tech investing over the last few years has been on artificial intelligence (AI), and while this presents a huge opportunity, it's somewhat overshadowed Amazon's bread and butter. The fact is that the company still collects most of its revenue from online retail, and a lot of it at that. Amazon's domestic sales have grown by double digits for years; the company brought in $86.3 billion in Q1 2024, a 12% jump year over year.
The scale and logistical wonder of Amazon's business are mind-boggling. In 2023, for instance, the company delivered more than 4 billion orders in the U.S. the same day or the next day. This prowess is part of what makes it by far the most dominant online retailer -- it controls more of the domestic market than its next 10 competitors combined.
2. Amazon is transforming its cloud infrastructure for the age of AI
Amazon doesn't just dominate the field in retail, either. The all-important data cloud is run largely on Amazon servers. Its Amazon Web Service (AWS) controls the top spot with 31% of the market. As AI takes off, AWS is vying to hold onto its position at the head of the pack. The company is pouring money into upgrading its hardware to meet the demands of AI technology.
Amazon is also investing in the technology itself, having dropped a cool $4 billion on its generative AI play, Anthropic, a direct competitor to OpenAI. The big players are engaged in a tech arms race, and Amazon has the resources to consistently innovate and build the infrastructure necessary.
Of course, this means its capital expenditures will likely be inflated for some time, a move that carries some risk if the investment doesn't pan out. Keep an eye on this in the upcoming earnings report and subsequent ones. There's certainly a chance the company will overspend, although it is hard to say exactly where that line is, since the technology is still in its infancy.
3. Amazon's advertising and streaming segment is big business
Amazon spent years building its Prime Video streaming business into the giant it is today. The company claims it has 200 million monthly viewers. This year, it introduced a tiered membership -- as many streamers have -- in order to more efficiently monetize its viewership. Members now have a choice of whether to pay a premium subscription for ad-free viewing or be served advertisem*nts for a lesser fee.
It's paying off; the company is seeing strong, double-digit revenue growth from these efforts. In the last two quarters, the first quarter of 2024 and the fourth quarter of 2023, Amazon reported year-over-year jumps of 24% and 26%, respectively.
Amazon is in a position to continue dominating the core segments of its business while accelerating key, high-growth areas of revenue. I believe its stock is a great pick.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Johnny Rice 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.
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