Worried About AI Valuations? This Stock Offers the Upside Without the Downside

Artificial intelligence (AI) stocks roared higher over the past few years as investors got excited about this technology's wide range of possibilities. From streamlining factory operations to powering humanoid robots, AI could transform the way the world operates. And this means that companies at the heart of this revolution -- and those who invest in them -- could score a major victory.

But, as AI stocks climbed, another thing happened: Their valuations took off. And investors began worrying about the possibility of an AI bubble taking shape. This concern weighed on AI stocks back in November, and though many have rebounded, the valuation problem remains.

Here's some good news, though: Certain AI stocks still trade at very reasonable levels. In fact, the following stock offers the upside without the downside. Let's check it out.

Image source: Getty Images.

Two major businesses

The player I'm referring to is a company you may know very well -- for two major businesses that powered earnings higher even before the AI boom. And this is Amazon (NASDAQ: AMZN), a giant in both e-commerce and cloud computing. So, first, you might wonder how Amazon is an AI company. Amazon uses AI across its business to increase efficiency -- for example, finding the fastest delivery routes for packages -- and it also develops AI products like chips and platforms and sells these as well as AI products of others, such as chip leader Nvidia, to its Amazon Web Services (AWS) customers.

Amazon not only is an AI company, but it's also an early winner in the field as it's already generating cost savings and revenue growth thanks to the technology. Use of AI throughout the e-commerce business is lowering cost to serve, and AWS' AI portfolio helped that business reach a $132 annual revenue run rate in the most recent quarter.

The company may continue to gain

As the AI boom marches on, Amazon should continue to benefit, offering investors the upside of the AI story. Now, the downside is the idea that the high valuations of some companies may not be sustainable, particularly if a hiccup in the AI story occurs.

Amazon doesn't rely uniquely on AI for growth -- even AWS offers a range of products and services that aren't linked to this technology. So, any potential slowdown in AI wouldn't be disastrous for Amazon's long-term earnings picture. Meanwhile, Amazon stock actually isn't expensive these days -- the stock trades for 29x forward earnings estimates, down from more than 50x two years ago.

Amazon isn't in a precarious position, so even if AI headwinds emerge, any revenue and stock price declines may be limited. And that's why Amazon today offers investors the AI upside -- without the downside.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.