Forget Nvidia: Buy This Unstoppable Growth Stock Instead

Investors hoping to score returns from artificial intelligence (AI) turned heavily toward Nvidia. Its leadership in the chip industry led the stock to massive gains, and investors who missed out likely remain on the sidelines hoping to buy.

Unfortunately, it appeared priced for perfection, and even a strong earnings report could not stop it from falling.

Still, investors can benefit from AI while gaining additional support from the consumer sector. If you want to enjoy the best that both tech and the consumer sectors offer, Amazon (AMZN 1.34%) could serve you well.

The state of Amazon

Although investors should consider today’s Amazon a conglomerate, most appear to associate it with its massive retail operations. Yet despite an enormous $1.9 trillion market cap, Amazon remains in growth mode.

Under most circumstances, the law of large numbers would indicate slowing growth due to Amazon’s size. However, it has circumvented this issue with an ingenious business model. The most sizable part of its business, online sales, has become a slow-growing business that appears to act as a loss leader.

Instead, Amazon derives most of its operating income from Amazon Web Services (AWS), its cloud computing business. AWS pioneered this industry, which grew to $600 billion as of 2023, according to Grand View Research. Grand View also estimates it will expand at a compound annual growth rate (CAGR) of 21% through 2030, taking the market’s size to $2.3 trillion by that year. AWS also gives Amazon a critical role in supporting AI, making it an essential part of the world’s IT infrastructure.

Profit levels are not reported for most of its businesses on the consumer side. Nonetheless, it is likely the positive operating income from its other sectors comes from advertising, third-party seller services, and subscriptions. These enterprises have successfully leveraged the benefits of retailing and IT, resulting in double-digit revenue growth for several quarters.

Amazon by the numbers

Moreover, despite its massive size, Amazon can still grow overall revenue at double-digit levels. In the first two quarters of 2024, it reported $291 billion in revenue, rising 11% compared with the same period in 2023. Of that, AWS made up $51 billion, or 18% of total revenue, compared with $110 billion generated by online stores, its original business.

However, as mentioned before, AWS continues to make up the majority of operating income, accounting for $19 billion of Amazon’s $30 billion in operating income reported for the first half of 2024. After including non-operating expenses and income taxes, Amazon earned $24 billion in net income during the period, compared with just $10 billion in the first half of 2023.

Amazon stock continues to climb, rising by just over 25% over the last year. Additionally, between its stock and the rising profits, Amazon’s P/E ratio has fallen to a surprisingly low 43, close to a multiyear low.

Admittedly, the triple-digit net income growth over the last year is likely unsustainable. Still, analysts forecast 31% average annual profit growth over the next five years. Although that is a way-too-early prediction, if earnings growth is close to that level, Amazon’s current valuation could make it resemble a faster-growing value stock, making its investment case all the more compelling.

Amazon stock is a buy

If you’re looking for a safe consumer and AI-oriented stock at an affordable price, you may have a hard time clicking on a more fitting stock than Amazon.

Indeed, at a $1.9 trillion market cap, most companies would struggle to achieve high-percentage growth. Yet Amazon has almost defied the law of large numbers by establishing a number of smaller, higher-profit businesses centered around a popular but possibly unprofitable online sales enterprise.

Such a business model serves investors because it offers the safety of a large, multifaceted enterprise, yet contains smaller businesses that drive significant growth.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.