The Ultimate Growth Stock to Buy With $500 Right Now

When most investors hear this term, “growth stock,” they’re probably thinking of a small disruptor, not a $2.3 trillion tech giant Amazon (NASDAQ: AMZN). But even though Amazon is already huge, it has the potential to create significant value for shareholders by integrating. productive artificial intelligence It is incorporating AI and robotics into its business model.

Let’s take a deeper dive into the reasons why Amazon shares may be poised to turn a $500 investment into significantly higher value over the long term.

Amazon is unique because of its ability to deliver next-generation technologies to its customers (via Amazon Web Services) and at the same time use technology to optimize its business model by making its workforce more productive. This trend may soon evolve into hyperdrive. According to the documents obtained New York TimesSome at the e-commerce giant plan to use artificial intelligence and robotics to automate 75% of the company’s operations in the coming years. This move will naturally involve replacing existing labor-intensive traditional warehouses with robot-heavy facilities much like factories.

The company made significant progress towards achieving this goal by commissioning its millionth robot in June. Robots can carry higher upfront costs than traditional labor. But when implemented properly, they can lead to long-term productivity gains due to lower operating costs, higher accuracy, and no turnover (Amazon loses most of its hourly employees within a year).

Amazon’s decision to pivot to robots (and fewer high-wage people) is probably about more than just cutting costs to save money. Perhaps counterintuitively, being a large employer carries enormous political risk; especially unionsThis could disrupt its business model and prevent it from closing underperforming locations.

For example, Amazon is currently facing a lawsuit in Quebec, Canada, for allegedly violating local labor laws by closing several factories in the province. Such cases can attract negative press attention, cause damage to the brand, and may also lead to fines or negative regulatory action, distracting Amazon from its core focus on consumer satisfaction. Investors should view the move toward robotics as a form of de-risking.

The shift to automation and robotics not only de-risks Amazon’s business model, it also increases the company’s profitability. Net sales in the second quarter rose a relatively modest 13% year over year to $167.7 billion. operating income CEO Andy Jassy’s efficiency drive continues to pay off, particularly in Amazon’s international e-commerce segment, where operating revenue rose a stunning 448% year over year, up 31% to $19.2 billion.

To be fair, Amazon’s second quarter wasn’t all that positive. Growth in cloud computing has been much more modest; AWS only increased operating revenue by 9% during this period (despite a 17% sales increase).

This weakness of AWS is surprising, given the growing demand for generative AI-related infrastructure. However, Amazon management continues to pour resources into the opportunity, with $31.4 billion in capital spending in the second quarter alone and $100 billion in capital spending expected for the full year. This expenditure carries some risk because there is an opportunity cost for capital. The market will likely punish Amazon’s shares if its AI push doesn’t work out as well as expected.

In the long run, Amazon looks like a clear winner as its automation push reduces costs and eliminates the risks of its labor-dependent business model. Profitability is already increasing, and investors should expect this trend to continue in the long term. with one forward price/earnings (P/E) is a multiple of 28, shares are trading at a slight premium S&P 500‘s the average is 22, but this seems reasonable given the strong fundamentals and potential for expansion in profitability.

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Will Ebiefung It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a feature disclosure policy.

The Best Growth Stocks to Buy with $500 Right Now originally published by The Motley Fool