I am very bullish for Amazon.com (AMZN) over the longer term. But all my research suggests this online behemoth will look very different as a business in five years.
That will be a good thing for shareholders. But some caution is warranted in the nearer term. Let me explain.
For a long time, Jeff Bezos, the founder and chief executive officer, has played by a different set of rules. He has focused on customers above all else. He has relentlessly plowed cash flow back into the business. And he has taken an extremely long-term view.
Bezos began building Amazon Web Services, one of the world’s largest cloud computing networks, when Amazon.com was little more than an online bookstore. And while the investment was ridiculously out of scale, it spoke to his vision and commitment.
Most investors and fund managers believe the bulk of infrastructure investment is in the rearview mirror. That is simply not true.
Investors should expect that will involve the hire of many more software engineers … the acquisition of AI companies … the development of new semiconductor architectures … and lots of data centers and servers.
This phase is only beginning. I’m positive on Amazon.com, Alphabet, Microsoft (MSFT) and Nvidia (NVDA) because the investments they are making in scale now, ensure that they will win AI.
To give you an idea of what is at stake, ZDNet recently reported that Gartner (IT), a global IT research and consulting firm, predicted AI will be worth $1.2 trillion in 2018.
“AI promises to be the most disruptive class of technologies during the next 10 years due to advances in computational power, volume, velocity and variety of data, as well as advances in deep neural networks (DNNs),” said John-David Lovelock, research vice president at Gartner.
Very few companies have the resources to make the investment that is required in compute, or the software expertise to train the DNNs that will bring AI to corporations, governments and hundreds of startups building new applications.
The AI winners have already been crowned. The riches are coming.
That is the longer term. In the near term, you should expect investors are going to be shocked how much all of this is going to cost.
Related story: Why Amazon is the Government’s Secret Weapon
That’s the risk that could show up in the earnings due after the close today.
As for Amazon.com, I would be an aggressive buyer of a decline to the 200-day moving average at $1,198. That may not happen because Amazon.com is a great business. But if it does, be ready.
Best wishes,
Jon D. Markman
P.S. There’s a lot to like about Amazon. It is offering its 110 million Prime members a 10% discount on Whole Foods sale items. It’s a frontrunner for a Department of Defense cloud computing project. And even with attacks from the White House about its shipping rates, the stock continues to surge. My Tech Trend Trader subscribers are sitting on a nice 50% gain in this name. But there are more tech winners where that came from, with smaller price tags and therefore bigger upside potential. Click here to make sure you’re on my mailing list when I release what promises to be the next big tech winner.
