The Only Tech Stock I'd Buy If I Could Only Pick One Right Now

These are exciting times to be an investor. Artificial intelligence (AI), robotics, and space are among the most promising megatrends with attractive upside potential. What I like about Amazon (NASDAQ: AMZN) is that it is tapping into all these opportunities and more.

But overall, Amazon's growth potential revolves around its strategy to double down on AI infrastructure. Amazon is increasingly structuring its entire business around AI, where management sees a major inflection happening right now.

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Amazon's core businesses are strong

Amazon has signaled a clear strategic shift over the last year. It continues to invest in faster delivery speeds and deeper penetration into rural areas to expand its e-commerce business. Last quarter, total sales grew 17% year over year to hit $181 billion, with online store sales posting their highest unit sales growth in four years.

But the primary growth driver is Amazon Web Services, where demand for AI services helped lift revenue by 28% year over year in the first quarter. Enterprises are attracted to the compelling cost and performance of Amazon's own chips (Trainium, Graviton, and Nitro), which are generating $20 billion in annualized revenue and growing at triple-digit rates.

The company plans to increase capital expenditures by 32% this year to nearly $200 billion, supporting cloud demand and additional compute capacity. This is tanking its free cash flow, which fell to $1.2 billion on a trailing-12-month basis, but management sees a once-in-a-lifetime opportunity.

As CEO Andy Jassy said, "We're in the middle of some of the biggest inflections of our lifetime." AI is shifting from a chatbot to a real service application, powered by autonomous agents that can get real work done. The investments Amazon is making in chips and data centers are positioning it as a top provider of compute power and tools for agentic AI systems, while also providing the core technology to power AI shopping assistants on Amazon.com.

Investments in new opportunities promise a big payoff

This aggressive spending can be a risk if the payoff isn't there, but it also suggests that management sees enormous opportunities ahead, and it's not just about AI. Amazon's capital expenditures also support fulfillment, transportation, and other e-commerce operations. Despite Amazon's lead in e-commerce, it still only captures a single-digit share of the global retail market. Management believes that more shopping in physical stores, which is 80% of retail, will shift online over the next decade.

Amazon also continues to build a large satellite constellation for its broadband internet service (Amazon Leo). Investing in space infrastructure offers tremendous opportunities across the rest of the business. It will enable people in areas with slow or weak internet connections to shop on Amazon, and it could also boost demand for AWS by enabling data processing at remote sites.

There's a lot more runway for growth than might be reflected in Amazon's valuation. Wall Street analysts expect the company's free cash flow to reach $81 billion by 2028. That is roughly double its previous peak in 2024. It's hard to call Amazon stock too expensive with the prospect of that much growth.

John Ballard has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.