Does Amazon's Andy Jassy Know Something Wall Street Doesn't? He Just Made a Game-Changing AI Prediction — and It's Excellent News for Investors.

Key Points

Artificial intelligence (AI) stocks have been a key focus for investors over the past few years. That’s because the technology offers potential to transform the way businesses operate and, as a result, supercharge earnings growth. We’ve even started to see some winners in the field, from developers of AI products and services to users of the technology. All of this has helped many AI stocks soar, and along the way, power major indexes higher.

Amazon (NASDAQ: AMZN) happens to be one of these early winners, thanks to the company’s cloud unit, Amazon Web Services (AWS), and the stock has climbed more than 100% over three years.

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But in recent weeks, investors have hesitated to buy AI stocks as one major concern emerged: that the potential revenue opportunity could possibly fall short of expectations. A disappointment here would be particularly painful considering the billions of dollars companies — including Amazon — are spending today to build out infrastructure.

This week, though, Amazon chief executive officer Andy Jassy made a game-changing AI prediction, and it’s excellent news for investors. Does he know something Wall Street doesn’t? Let’s find out.

Image source: Getty Images.

Amazon’s work in AI

First, though, let’s take a quick look at Amazon’s presence in the AI space. The company is benefiting from the technology in a big way because it is a user, developer, and seller of AI. Amazon’s massive e-commerce business uses AI in a variety of ways, from launching shopping assistants for customers to leveraging the power of AI to map out the best package delivery routes.

But where Amazon truly is hitting it out of the park is at AWS. The cloud business offers a vast portfolio of AI products and services to customers — including in-house-developed chips, chips from big names like Nvidia, a fully managed service called Amazon Bedrock, and more. All of this has helped AWS reach an annual revenue run rate of $142 billion. Amazon is investing heavily to meet demand for AI and non-AI services, and importantly, the company is generating revenue from new capacity as soon as it becomes available.

Still, as mentioned, investors have been worrying about the level of AI investment and question whether future revenue will make it worthwhile.

Jassy’s revenue prediction

Now, let’s consider the latest comments from Jassy. The Amazon chief predicts AI may help push AWS to $600 billion in annual revenue — this is double his earlier forecast and nearly represents the size of Amazon’s entire business right now. Reuters reported the comment, citing an internal meeting, and this forecast is for a decade from today.

“We have very clear and significant demand signals,” Jassy said, according to comments gathered by Reuters. “We’re not just spending the $200 billion of capex because we’re hoping AI is going to be big.” During its latest earnings report, Amazon announced this level of capital spending for the year, and the stock declined.

Here’s why this news from Jassy is a game changer: It shows that AI may have what it takes to make AWS down the road a business that’s nearly the size of Amazon as a whole today. Amazon’s revenue in the latest full year came in at $716 billion. This is supported by Jassy’s observations of growth so far and his view of what’s to come, given the technology’s capabilities. Jassy, involved in the development of AI and in communicating with customers who use it, is well-positioned to understand how the story may unfold.

It’s also worth noting that AWS has traditionally been the profit driver for Amazon; today, it accounts for 57% of Amazon’s total operating income. The strength of this business is extremely important to the company’s overall health.

Does Jassy know something Wall Street doesn’t? Wall Street has worried about AI spending, but here, Jassy suggests that isn’t necessary: AI is on track to ignite Amazon’s revenue growth over the coming decade. This is fantastic news for Amazon shareholders and investors in many other quality AI stocks, too.

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