Where Will Amazon Stock Be in 5 Years as AWS, Advertising, and AI Converge?

Amazon (NASDAQ: AMZN) is well known for its e-commerce business, selling a wide range of essentials as well as mass merchandise through its platforms around the world. In the U.S., Amazon is even present in healthcare, offering pharmacy services to members of its Prime subscription program. And speaking of Prime, this service's fast delivery and special sales keep members coming back.

All of this has helped Amazon develop a well-established e-commerce empire, one that generates billions of dollars in sales quarter after quarter. But this is only one part of the company. Amazon Web Services (AWS), the cloud computing unit, and advertising revenue have become key parts of Amazon's revenue picture. And in recent quarters, the company's presence in artificial intelligence (AI) has become particularly valuable. Where will Amazon stock be in five years as AWS, advertising, and AI converge? Let's find out.

Image source: Getty Images.

Amazon's ad business

So, first, a quick summary of the story so far. Amazon may be most recognized as an e-commerce company, thanks to its worldwide footprint and the vast selection of items available for purchase. And this has opened the door to advertising opportunities. Advertisers flock to Amazon for sponsored listings, appearing at the top of search results, as well as placements in the AI-assisted shopping experience. And they also place their ads across Amazon Prime Video and streaming programming, particularly during sporting events.

Meanwhile, Amazon generates significant growth through AWS, the company's biggest profit driver. This is thanks to the unit's core, non-AI offerings as well as AI products and services. This has helped earnings explode higher in recent years.

In the most recent quarter, net sales jumped in the double digits to $200 billion, and that includes more than $42 billion in AWS sales and $19 billion in advertising -- each of those segments delivered double-digit growth too. And AWS generated more than $16 billion in operating income on a total of $27 billion for the period.

As this story unfolded, the stock price advanced, but at a measured pace compared with many other AI stocks: Amazon shares have climbed about 50% over the past five years.

Now, let's consider where Amazon stock may be in five years as the company's growth businesses converge. A lot is happening right now at this market giant, and this is paving the way to ongoing earnings expansion.

Well-positioned to capture AI demand

AWS is seeing soaring demand in its core non-AI business as well as in the area of AI. Since it's the world's No. 1 cloud services provider, it's well-positioned to capture AI demand, as current non-AI customers are happy to expand their partnerships rather than turn to another platform for AI. Amazon has recognized the opportunity and prepared, developing a broad range of products and services, offering everything from chips to large language models.

And speaking of chips, Amazon has created a portfolio of custom chips for customers seeking quality performance at a reasonable price. This offering has exploded higher, with its annual revenue run rate reaching $25 billion in the recent quarter. Amazon even considers launching a stand-alone chips business.

At the same time, analysts expect the value of the AI market to climb into the trillions by the end of the decade, and Amazon is on track to benefit. Amazon chief Andy Jassy predicts that AWS could be a trillion-dollar revenue operation eventually as customers shift more business progressively to the cloud.

As for advertising, as more shoppers use AI, advertisers may seek to increase their presence there. In the recent earnings call, Jassy said sponsored ads are a key growth driver for the company, and advertising across sporting events on Prime has significant momentum as advertisers are increasingly expanding campaigns across many types of sporting events.

So, as the growth opportunities of AWS, advertising, and AI converge, Amazon stock in the coming five years could easily skyrocket -- surpassing its performance of the past five years. And that's great news for investors who buy and hold today.

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