When it comes to institutional money managers, Ark Invest CEO Cathie Wood and Berkshire Hathaway CEO Warren Buffett are two of the most closely followed. Despite their notable reputations, Wood and Buffett have very little in common.
Buffett built his fortune primarily investing in blue chip businesses that generate steady cash flow. Conversely, Wood has a knack for making higher-risk bets in emerging technologies.
Nevertheless, there is one thing that Wood and Buffett have in common: They both own shares in Amazon (NASDAQ: AMZN) .
While Amazon is not a core position for either Wood or Buffett, I find it interesting that the e-commerce and cloud computing specialist is the only Magnificent Seven stock that both investors own.
Let's dig into what makes Amazon such a unique opportunity right now as excitement around artificial intelligence (AI) continues to play out.
Is Amazon getting any love?
For the last couple of years, I'd argue that the majority of AI chatter has revolved around Microsoft and Nvidia . In a way, this makes sense.
Microsoft kicked off the AI revolution with its $10 billion investment in ChatGPT developer OpenAI . Moreover, Nvidia's graphics processing units (GPUs) are being rapidly deployed by some of the world's largest companies around the globe.
Although I understand why Wall Street analysts and financial media pundits have covered Microsoft and Nvidia endlessly, I think opportunities such as Amazon have gone largely overlooked.
Piles and piles of cash
The chart below illustrates Amazon's operating cash flow on a trailing-12-month basis over the last several years. For the quarter ended March 31, Amazon's operating cash flow rose 82% year over year to $99.1 billion.
AMZN Cash from Operations (TTM) data by YCharts
Furthermore, the company's free cash flow has soared to $50 billion for the trailing-12-month period ended March 31. Considering Amazon was burning cash just a year prior, the rapid turnaround to such a robust financial position is impressive.
Let's take a look at how Amazon is investing some of its newfound profits, and why I think the company is building the foundation for long-term success.
Shortly after Microsoft invested in OpenAI, Amazon followed with a move of its own -- a $4 billion investment into an AI start-up called Anthropic.
As part of the deal with Anthropic, the start-up will be using Amazon's cloud infrastructure, AWS, as its primary provider. This is a game changer for AWS, and I see it as a major catalyst for the company's cloud growth -- from new products such as Amazon Bedrock as well as Amazon's homegrown Trainium and Inferentia semiconductor chips .
In addition to its partnership with Anthropic, Amazon is also committing $11 billion to build out data centers in Indiana .
It's clear that AI represents an entirely new frontier for AWS. Amazon is making some aggressive investments as it looks to outmaneuver Microsoft and Alphabet in the cloud computing space, as well as make a move on Nvidia in the chip arena.
Although these investments are both pricey and ambitious, Amazon clearly has enough financial horsepower to double down on its AI vision and compete with its megacap peers at scale.
Image source: Getty Images.
Amazon looks primed to thrive for the long run
The chart below shows Amazon's valuation as measured by price to free cash flow (P/FCF).
AMZN Price to Free Cash Flow data by YCharts
What sticks out the most in the chart above is that Amazon's current P/FCF of 42 is about half of the company's average P/FCF multiple over the last 10 years.
However, the more subtle idea here is looking at how normalized Amazon's valuation has become over the last decade in light of so many dramatic changes at the company. For starters, AWS is now a $100 billion revenue run rate business. Considering the majority of Amazon's operating profits come from AWS, it's encouraging to see this business segment thrive.
Moreover, as generative AI continues to witness more demand, I think AWS' revenue growth and profits have the potential to exponentially accelerate.
Outside of AWS, Amazon has also quietly built a multibillion-dollar advertising business -- an area where it can further compete with Alphabet and make inroads on Meta Platforms as well.
I think many investors view Amazon through a narrow lens and are missing the broader theme as it relates to AI. Unlike many of its Magnificent Seven peers, Amazon is so diversified as a business that it has the ability to compete with all of its peers and do so in a highly profitable way.
I think it's only a matter of time before these AI investments begin to show up in concrete results in the company's financials, at which point investors will begin to see Amazon emerging as a major force in AI. Of course, this could ignite some newfound enthusiasm for the stock and it could see an outsize run.
To me, Amazon stock looks like a bargain compared to other big tech stocks right now and its long-term potential should not be underappreciated.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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