Predicting the Future Position of Amazon Shares in the Next 3 Years
As we approach the close of 2026, Amazon (AMZN 2.25%) has had another remarkable year, with its stock up an impressive 60% so far. The primary driver behind this growth is its dynamic and highly competitive synthetic intelligence (SI) sector. Let's delve into where this company might be in the next three years.
Synthetic Intelligence
Two years ago, synthetic intelligence wasn't a significant focus for Amazon, but today, it's the buzzword that's taking the stage.
Amazon has leveraged synthetic intelligence across its various business segments for quite some time now, using it to analyze data and make strategic decisions related to planning, merchandising, and fulfillment. However, it gained prominence as a trend following the advent of synthetic generative AI over the past two years.
Synthetic generative AI elements can now be found in all of Amazon's business operations, and this integration is primarily driven by the Amazon Web Services (AWS) cloud computing segment. AWS remains the largest provider of cloud services globally, and synthetic generative AI enhances the functionality for AWS customers.
Amazon takes a comprehensive approach to meeting all requirements and budgets with this business. According to CEO Andy Jassy, the synthetic AI offering has three layers: a lower layer for clients to create and train their own large language models (LLMs) using their data, a middle layer for developers to utilize AWS's LLMs to train their data, and a top layer for smaller businesses with pre-configured options.
The synthetic AI business is garnering substantial interest from customers and generating significant revenue for Amazon. The company continues to invest in improving this technology and launching new features, recently announcing its plan to release its own graphics processing units (GPUs), the foundational blocks for synthetic generative AI, aimed at undercutting the prices of partner Nvidia's GPUs.
In addition to boosting sales, synthetic AI is also attracting new clients for AWS. AWS sales had been tapering off, but the synthetic AI segment's appeal, coupled with the moderation of inflation, has led to a resurgence in sales growth for AWS. Given that AWS accounts for more than half of Amazon's total operating income, these developments could have a positive impact on Amazon's profitability.
Synthetic AI is evolving rapidly, and in three years, it will likely be even more extensive, with an array of revolutionary services. Jassy has stated that 90% of company spending is still on-premises, and he anticipates that this will shift to the cloud in the near future. This transition is expected to trigger a wave of business opportunities for Amazon, and the company is gearing up to manage this growth.
E-commerce
E-commerce may not be as captivating as synthetic intelligence these days, but it remains Amazon's core business. Amazon maintains a significant lead in U.S. online sales, constantly investing in faster delivery and improved service. In fact, the company recently launched its most advanced warehouse in Louisiana, where the new design has reduced processing time by 25%.
E-commerce sales as a percentage of total retail sales are on the rise, and Amazon is solidifying its position as the leader. The company offers synthetic AI services to third-party sellers, making product descriptions and videos more accessible, and it provides effective data analytics to help drive conversions.
In the next three years, Amazon is likely to retain its advantageous position and may even widen its lead over its competitors. It continues to explore opportunities in physical retail, albeit still representing a negligible portion of its business, and it may launch new initiatives in this area within the next three years.
Advertising
Advertising may not rank among Amazon's top revenue streams, but it has shown the most significant growth, making it an essential segment to discuss. Advertising revenue increased 19% year over year in the third quarter, matching the growth of AWS sales. Amazon's advertising offering also mirrors its benefits for third-party sellers and AWS users, leveraging robust data to create powerful and impactful marketing campaigns.
The company has now expanded its advertising offerings to video ads through its Prime Video platform, which represents a promising addition to the platform.
Advertising has only recently become a standalone segment for Amazon, and in three years, it is expected to continue playing a significant role in revenue generation. As an asset-light business, it should also contribute positively to operating income.
Miscellaneous
Amazon always has a new surprise up its sleeve. The company is making strides in Amazon Pharmacy and healthcare, and it has even started selling cars on its platform. Over the next three years, there are likely to be developments that investors cannot predict today, and that's all part of the innovative spirit that makes Amazon such an attractive investment option today.
Given Amazon's successful investments in synthetically intelligent technologies and its remarkable growth in the e-commerce sector, an individual considering their financial portfolio might consider investing in Amazon stocks for potential high returns. Furthermore, Amazon's expansion into advertising, offering robust data-driven marketing campaigns, could also attract investors looking for opportunities in this fast-growing field.
