Are investors overlooking obvious technology investments right in front of their faces? Stocks like Nvidia and Palantir Technologies have soared in recent years, lifting the S&P 500index higher. However, some strong technology companies’ stocks have been relative laggards during that time.
One example is Amazon (NASDAQ: AMZN). Over the last five years, its shares are up 51%, compared with an 88% gain for the index. I think the market is massively underappreciating Amazon’s potential as an artificial intelligence (AI) winner.
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Here’s why I view Amazon as the most undervalued AI play for your portfolio in 2027 and beyond.
Massive cloud acceleration
Evercore‘s Mark Mahaney has a price target of $355 on Amazon stock, which currently trades at around $250. He sees its potential to flip from AI laggard to AI winner over the coming quarters.
Why? Because of how much Amazon Web Services (AWS) is benefiting from the AI infrastructure boom. Amazon has chosen not to develop its own cutting-edge AI model, but AWS is the world‘s No. 1 cloud infrastructure player, and it aims to remain the data center, IT layer, and platform provider of choice for the training and deployment of AI services.
Last quarter, AWS revenue grew 37% year over year to $42.2 billion, a huge acceleration from recent quarters. With AWS’ backlog growing and Amazon pouring capital into new data centers, investors should expect this growth to continue compounding over the coming quarters.
Don’t forget e-commerce automation and advertising
AI can bolster Amazon’s e-commerce, retail, and services divisions in different ways.
First, it is applying AI search tools to its website to help customers parse ordering choices more efficiently. Second, it’s using AI to help brands create sponsored ads and more effectively target their advertisements. Third, Amazon is layering in automation and AI across its supply chain, including warehouse sorting, self-driving delivery, and drone delivery. The last one is a longer-term investment, but could lead to huge efficiency gains for Amazon in the years ahead.
Amazon’s North America retail business grew 16% last quarter to $116 billion. Margins remain quite thin for that segment, at 7.4% over the last 12 months, but that is due in part to the investments it is making in automation and AI. Over the longer term, there should be immense operating leverage across this supply chain, leading to a nice expansion of segment margins.
