Many people assume investing in stocks is only for the wealthy. However, that's a mistaken assumption. It's advisable to get your financial house in order by doing things like having an emergency savings account, typically at least three months' salary.
Once you do that, you can start investing modestly and add to the amount over time. Picking a stock might seem overwhelming, but you can ease your stress by doing your homework.
Amazon (AMZN 1.16%) has long been a growth stock. And although it has richly rewarded shareholders over the years, its growth prospects remain strong.
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Large and growing profit center
Amazon has wide-ranging businesses. Many people think about Amazon's e-commerce website, Prime subscription service, or even its physical stores like Whole Foods. However, another business, Amazon Web Services (AWS), produces the majority of the company's profit.
AWS is Amazon's cloud computing business. It has large data centers that organizations use to process data for organizations. This has become very important to how companies and governments make decisions.
The industry has been growing rapidly, and AWS has the leading market share. It had a 31% share at the end of the third quarter, eclipsing Microsoft's (NASDAQ: MSFT) Azure (20%) and Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Cloud (12%). The business's size offers advantages to run efficiently. That's because a company needs a lot of resources to operate data centers.
AWS' third-quarter sales grew 19.1% year over year to $27.5 billion. Its profit rose nearly 50% to $10.4 billion. Although it's the smallest among Amazon's three divisions, it accounted for 60% of the company's operating income.
Artificial intelligence factor
AWS remains far from a mature business. While its current sales growth is nothing to sneeze at, the rate could accelerate in the coming years as organizations rapidly adopt generative artificial intelligence (AI). That would greatly impact Amazon's bottom line.
Amazon notes it's been an early adopter of AI in its business. Management claims AWS' generative AI can help across an organization's teams, from sales forces, to data scientists, to business analysts.
Generative AI is in its very early days. But the technology has so much promise and should enable AWS to better service its customers.
Valuation
Amazon's growth prospects aren't a secret to investors. The share price has gained 50.2% over the last year through Jan. 23, outpacing the S&P 500's 25.2%.
The shares, with a price-to-earnings (P/E) ratio of 50, certainly don't trade at a bargain, even if that's down from nearly 60 a year ago. By contrast, the S&P 500 has a 31 P/E.
However, you can start with your small investment and grow your position over time. You can only purchase a few shares currently with your $1,000. While it takes discipline, you can commit to investing the same sum at regular intervals in an investing strategy called dollar-cost averaging.
This smooths out your purchases. Sometimes, you'll buy when the stock's expensive and other times when it's a relative bargain. Dollar-cost averaging also allows you to build up your stake over time.
At some point, Amazon will become a mature company. But those days seem a long way off with AWS set to grow even faster in the coming years. Fortunately, small investors don't have to get left behind.
