The artificial intelligence (AI) boom has made many investors considerable gains since ChatGPT went live almost three years ago. Undoubtedly, there are some critics who think the AI boom will not end well for tech or even the broader markets.
Still, I do think that if investors continue to put their magnifying glasses on corporate earnings, this bull market led by AI has the means to march even higher, perhaps much higher. Of course, it’s impossible to tell the future, but when it comes to AI stocks to bet on, I do think that paying careful attention to valuation metrics and the potential AI-driven trajectory is key.
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A U.S. AI play to consider buying up
There are a growing number of intriguing AI plays here in Canada, but one of the best long-term AI names to stash away in a TFSA, I think, lies just south of the border. Indeed, a name like Amazon (NASDAQ: AMZN) stands out as one of the bigger winners as the e-commerce juggernaut puts its innovations to work. With the impressive roster of warehouse robots rolled out by the e-tail titan, I do think the firm stands out as a top contender, as we hear just a bit less about generative AI and a bit more about embodied AI, physical AI, and agents.
Sure, Amazon can also make a big splash with generative AI as it continues to advance Alexa. However, much of the AI growth, I think, lies in the AI cloud in addition to its AI-driven silicon. Time will tell how far Amazon Web Services (AWS) can take the AI ball. I think it might run it all the way into the end zone for a touchdown, as the firm tailors AI for its own use.
Indeed, nobody knows how AI can benefit the business than Amazon itself!
In due time, I think AI could give margins a bit of a nice jolt, perhaps enough to fuel a big breakout in the stock at some point over the medium term. Of course, it’s a good thing that it’s the quarterly earnings themselves, rather than hype or growth promises, that are moving the needle on the share price.
Amazon stock is starting to look really cheap!
At the time of this writing, I think Amazon stock looks incredibly cheap, given its AI magnificence. It’s one of the Magnificent Seven stocks for a reason, after all. At $222 and change per share, AMZN stock goes for just shy of 34 times trailing price-to-earnings (P/E). That’s on the low side, historically speaking!
When you consider the earnings growth to come, AMZN shares look even cheaper, going for 28.3 times forward P/E. Personally, I think such a multiple undervalues the $2.4 trillion tech titan’s shots at gaining a boost from the AI race.
In the meantime, the stock seems to be struggling to break out past the heights hit earlier this year. Though the fourth quarter may not see the breakout moment, I do think that AI cloud growth and a resilient consumer might be tailwinds to look ahead to the new year.
