Quietly under the radar, Amazon AMZN The stock is having an excellent year in the markets. It is up nearly 22% so far this year, nearly double the performance of the S&P 500 and Nasdaq 100.
It always seems to be Amazon's way. When the world starts to write him off, the Seattle tech giant comes up with another idea to make money. It's been this way since Jeff Bezos founded the company in 1994.
Just as insurance is owned by Berkshire Hathaway
BRK.B Golden Goose, Amazon Web Services (AWS) is Amazon's big profit generator. To ensure it remains that way, Amazon CEO Andy Jassy, who led AWS before Bezos stepped down in July 2021, decided last week to replace AWS CEO Adam Selipsky with the AWS veteran Matt Garman. Selipsky had previously acquired AWS from Jassy.
If Amazon wants to remain a cash flow machine, Garman will have to transform AWS from a cloud provider to a leader in artificial intelligence (AI). If I have learned anything about Amazon, it is that it is more than capable of meeting the challenge.
This is why.
AWS is about to accelerate its AI efforts
The good news for the newly appointed AWS CEO is that AI requires considerable cloud infrastructure. microsoft 
MSFT said in April that demand for cloud-based AI services outstrips supply even though the company spent $14 billion on capital expenditures in the first quarter of 2024, nearly 80% more than the last year.
The bad news is that Microsoft Azure and Google Cloud have done more with AI than AWS, leading to a decline in market share. If you are not careful, these market share losses will go from a trickle to a torrent. Garman intervened to prevent it.
Jassy is taking another big step in his first three years as CEO. This could be his downfall if he doesn't get it right. Forrester Research principal analyst Lee Sustar believes Garman's strategic decisions made in the second half of 2024 and into 2025 could shape the future of this highly profitable division.
“AWS's differentiation has historically been in infrastructure,” SDX Central executive editor Dan Meyer reported on Susar's comments. “Instead of competing in areas like enterprise software packages, it can double down on custom silicon GPUs as an alternative to Nvidia. “AWS could bring its ‘go-build’ cloud strategy to genAI to help customers focus on the use cases that matter most instead of pushing AI everywhere.”
That makes sense. Amazon has always been strategic in its business decisions, choosing precision and quality over quantity.
Amazon Prime increases advertising revenue
Interestingly, back in October 2023, I said that Amazon's advertising business could become even more important than Amazon Prime.
In my analysis at the time, Amazon had generated $38 billion in annual ad revenue in 2022, up 21% from the previous year. More importantly, this was $2.5 billion more than its revenue from subscription services, which includes Prime. In 2020, revenue from subscription services was $5.4 billion higher than advertising revenue. It was a complete turnaround in just 24 months.
Throughout 2023, its advertising revenue increased to $47 billion, representing almost 10% of the company's total revenue. An important way to generate advertising revenue is through Amazon Prime videos. Unless subscribers pay $2.99 per month to avoid them, the standard monthly subscription now includes a set of minimally invasive ads during streaming. Experts suggest the company could generate $3 billion a year from these ads.
Here's the beauty of this hype: unlike other streamers, Prime Video is one of the many benefits of the Prime annual subscription. So unlike Disney+, Netflix 
NFLX or one of the other major streamers, customers may not be as bothered by the sudden appearance of ads. I doubt consumers feel the same way about others who don't offer free two-day shipping, etc.
The Bottom Line for Amazon Stock
Forgetting its huge e-commerce business and Whole Foods, Amazon continues to grow three revenue streams: advertising, AWS, and AI. How you look today will pale in comparison to how you look tomorrow.
I don't think Amazon shareholders should worry about losing ground to other companies, whether in advertising or AWS.
It's still an excellent stock to own for the long term.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com's publishing guidelines.
Will Ashworth has written about investing full-time since 2008. Publications he has appeared in include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the US and Canada. He especially likes creating model portfolios that will stand the test of time. He lives in Halifax, Nova Scotia.
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