D.A. Davidson analyst Gil Luria’s perspective on Amazon.com Inc. extends beyond its traditional identity as an e-commerce powerhouse. He sees the company as poised to capitalize on the burgeoning artificial intelligence (AI) chip market, presenting a compelling case for its potential upside.
Luria emphasizes Amazon’s strategic move towards vertical integration by developing its own semiconductors. This initiative, he argues, could confer a substantial long-term pricing advantage to the tech giant. While Amazon currently relies on Nvidia GPUs for its AI-related needs, Luria predicts that the company’s transition to using its own chips could result in a competitive edge, particularly in terms of cost efficiency.
Despite the spotlight often shining on Microsoft Corp.’s Azure cloud-computing business for its AI capabilities, Luria believes that investors may be underestimating Amazon Web Services’ (AWS) potential in this domain. He highlights AWS’s rapid advancements in developing smaller models and custom chips, positioning the platform to cater to its vast customer base with innovative AI applications.
Moreover, Amazon’s commitment to investing $150 billion into data-center infrastructure over the next 15 years underscores its dedication to bolstering its technological infrastructure. This massive investment, unmatched by any other player except Microsoft, is expected to fortify Amazon’s position in the AI chip market.
Luria’s bullish outlook on Amazon is reflected in his buy rating on the company’s shares, accompanied by an increased price target of $235. He contrasts Amazon’s diverse revenue streams, which include advertising and retail, with Nvidia’s more cyclical hardware-focused business. This dichotomy, he suggests, positions Amazon as a potentially more attractive investment opportunity.
Furthermore, Luria points to Amazon’s improving profit profile in its retail segment, driven by a moderation in capital spending on distribution centers. This shift allows the company to allocate more resources towards data-center capital expenses, further solidifying its foothold in the AI chip market.
In essence, Luria’s analysis underscores Amazon’s multifaceted growth trajectory, driven by its strategic foray into AI chip technology, continued expansion of its retail and cloud computing divisions, and a relentless commitment to innovation and investment.