Amazon is the everything-plus-AI store

Checking brown boxes. Amazon.com is known as the everything store, but investors have thought the description falls flat when it comes to artificial intelligence. While the $1.8 trillion e-commerce giant’s valuation has trailed Microsoft, which has plunged into AI, the company is trying to remedy that with spending in the coming year. Its dominance in both data and storage suggests a change in perception may help reality.

When it comes to the nuts and bolts, the company led by Andy Jassy is doing just fine. Amazon said on Tuesday that first quarter-revenue increased 13% year-over-year to $143 billion. Retail sales at its North America division rose 12% to $86 billion and even the international e-commerce division notched positive operating income. And at AWS, the group responsible for the cloud business, growth has reaccelerated: For the three months ending March, revenue rose 17%, better than what analysts’ were penciling in, according to LSEG, and faster growth than in the previous quarter.

But investors already know that tune. Amazon is considered an also-ran in the more exciting technology growth story: AI. That is reflected largely in its enterprise value as a multiple of EBITDA. In January 2023, Amazon was worth approximately 16 times next 12 months of EBITDA, according to LSEG, while Microsoft was valued at 18 times. But in the same month Microsoft Chief Executive Satya Nadella announced an additional $10 billion investment in OpenAI, the spread has only widened. The Redmond, Washington behemoth is now worth over one and half times that of Amazon on the same metric. Shares in Microsoft have increased over 200% in the past 5 years, twice that of Amazon.

One reason why Amazon perhaps hasn’t telegraphed its initiatives in AI is because it’s already established in the areas that help companies build the best platforms. The ability to store data and provide hosting services to enterprise customers is a natural path for companies looking for AI capabilities. AWS is the market leader in cloud by revenue, according to Bernstein analysts. Plus blowing cash on AI isn’t necessarily a good thing. Last week, Meta Platforms’ shares fell more than a tenth after CEO Mark Zuckerberg said he was going to throw money at new projects. Google parent Alphabet has plowed $280 billion of capital expenditures into data centers and related artificial-intelligence projects, but its stock has not been rewarded.

Still Amazon is trying to remedy the gap. On Tuesday, the company said it would ramp up spending this year on AI. It has already shelled out $14 billion this quarter on capex. Annualized it would be at least $60 billion, besting Meta’s war chest dedicated to AI. If investors were concerned Amazon was behind the spending curve, they shouldn’t be now.