Want to Invest in Artificial Intelligence (AI) but Scared of the Volatility? This 1 Stock Is Built for Uncertain Markets.
Key Points
This company has a long track record of increasing revenue and profit.
This tech giant is present in two major growth industries.
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Artificial intelligence (AI) stocks were major winners for investors over the past few years -- but in recent weeks, these exciting players no longer led gains. In fact, they've been weighing on the S&P 500's performance.
Why the change? Several uncertainties -- from turmoil in Iran to the U.S. economic backdrop -- have hurt investors' appetite for growth stocks, including AI players. Growth stocks generally thrive when the economy is doing well, so any threat to stability or growth isn't good news for them. This has led to high volatility in the stock market, and the trend may not be over -- though the U.S. announced a two-week ceasefire in Iran to allow for negotiations, it's still too soon to say when the conflict will end.
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So you may still be scared of volatility and hesitant to invest in AI players. But the good news is this one AI stock in particular is built for uncertain markets.
Image source: Getty Images.
Proof of resilience
The stock I'm referring to is a company that built a solid, earnings-generating business well before the AI boom, and it's a leader in two growth areas. I'm talking about e-commerce and cloud computing leader Amazon (NASDAQ: AMZN). It's shown great resilience over time, and the stock quickly rebounded after the last U.S. recession in 2020.
AMZN data by YCharts
Over time, Amazon has grown revenue and profit, and its gains in return on invested capital (ROIC) show that it's invested wisely. It's normal to see dips in ROIC as investment phases take time to deliver -- what's key is that it advances progressively and generally trends higher.
AMZN Revenue (Annual) data by YCharts
Amazon has accomplished this by building out its presence in the e-commerce space, with a broad global fulfillment network, a membership program, and a wide variety of offerings from entertainment to groceries. But it's Amazon Web Services (AWS), the company's cloud arm, that truly makes it an AI leader. AWS is the world's No. 1 cloud company, serving the non-AI and AI needs of customers.
Demand for AI and non-AI products
In recent quarters, AI products and services -- from chips to fully managed service Amazon Bedrock -- have driven AWS' growth, but importantly, demand for non-AI services also is soaring. So, even if the AI story faces a hiccup at some point, AWS is well-positioned to keep revenue marching higher.
During the latest earnings call, Amazon chief Andy Jassy said something that reinforces the idea of ROIC strength. "We have deep experience understanding demand signals in the AWS business and then turning that capacity into strong return on invested capital," he said, noting that he expects this to continue.
All of this makes Amazon a stock built for uncertain markets -- and one to hold onto for the long term.
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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