Amazon (NASDAQ:AMZN) stock has been caught in the midst of overall market turbulence, experiencing a drop of as much as 15% from its 52-week peak of nearly $146 per share before staging a modest recovery. Currently, the e-commerce and cloud giant’s shares are down approximately 13% from their early August highs. Many analysts view this dip as an appealing entry point, given Amazon’s relentless innovation across various fronts.
This year has seen Amazon stock make a substantial recovery, gaining nearly 49% year-to-date. While it still trails more than 33% below its all-time highs from 2021, some new growth drivers are on the horizon that could propel it to new heights.
Generative AI as a Growth Catalyst
Amazon is placing significant bets on generative artificial intelligence (AI). It plans to enhance the capabilities of its voice assistant, Alexa, by integrating generative AI updates. Furthermore, its own large language model (LLM) known as Titan holds the potential to be a game-changer. Titan aims to compete effectively with its fully managed AI service, Bedrock.
Amazon’s diversification in the AI arena is evident as it caters to both consumers through Alexa and offers enterprise customers the Bedrock service. Additionally, the company is exploring automation opportunities in warehouses through robotics and in office settings with its code-generation tools.
Moreover, Amazon’s recent $4 billion investment in AI firm Anthropic bolsters its AI endeavors, mirroring Microsoft’s investment in OpenAI. This move enhances Amazon’s already robust AI strategy.
Value Addition from Prime Video Ads
Amazon is poised to generate substantial revenue by introducing advertisements on its Prime Video service. Historically, Prime Video was a valuable perk for frequent Amazon shoppers who subscribed to Amazon Prime. However, over time, the platform has evolved into a significant entertainment hub, thanks to hit shows like The Boys and its spin-off series, Gen V.
As Prime Video’s popularity grows, it becomes a key factor in retaining Prime memberships. With the resolution of Hollywood writer strikes, Prime Video is set to become an even more compelling streaming platform, and Amazon recognizes this. Therefore, Amazon plans to introduce ads (alongside an ad-free subscription tier) rather than increasing the price of its Prime membership in the face of economic challenges.
While watching ads during Prime content may be slightly inconvenient, Amazon’s modest fee of $2.99 per month to remove ads is unlikely to deter viewers, especially if high-quality content continues to be delivered consistently. UBS analyst Lloyd Walmsley believes that Prime Video ads could contribute as much as $3 billion to Amazon’s revenue, and this is a conservative estimate. In the long run, streaming ads could significantly boost the company’s profitability.
E-commerce and AWS Potential
With the economy showing signs of recovery and generative AI making strides, Amazon’s e-commerce and Amazon Web Services (AWS) cloud businesses could experience a boost. Advanced large language models (LLMs) could help direct more potential customers to Amazon, reinforcing its competitive position in the retail industry.
Furthermore, Amazon’s recent hiring spree signals optimism for the upcoming holiday shopping season, not to mention the annual Prime Day event.
Conclusion
Amazon stock has experienced volatility in recent years, but its prospects are promising as it continues to lead in AI innovation. It may take time for consumer trends to fully favor the company, but in the meantime, Amazon is diversifying its revenue streams, notably through Prime Video ads.
Trading at 40.16 times forward price-to-earnings (P/E), Amazon remains highly regarded by analysts. All things considered, the 13% decline from its 52-week highs represents an enticing opportunity for investors looking to buy the dip.
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Author Faith Yakubu 
