Essential Highlights

Amazon Web Services cloud operations expanded 28 percent last quarter, marking its quickest growth in 15 quarters.
Amazon proprietary chips now represent a business exceeding a 20 billion dollar yearly revenue run rate.
The company intends to allocate roughly 200 billion dollars on capital expenditures in 2026, which may pressure near-term free cash flow.

Markets have shown some nervousness lately. The Federal Reserve concluded its initial session under new leadership by keeping rates unchanged yet signaling a possible increase later this year, which weighed on major indexes before a modest recovery. An early June decline in AI and semiconductor shares added to the moves.

Yet could this turbulence open doors? In certain segments, opportunities appear. Such phases offer a chance to identify shares that retreated more than fundamentals warrant.

With that perspective, which AI stock might suit a purchase today for a 10-year hold?

One name that stands out is Amazon. Shares currently trade near 244 dollars, roughly 12 percent under the early May peak of 278.56 dollars. Beneath the swings, the segment most vital for long-term prospects posted one of its strongest quarters recently.

Image source: Getty Images.

A strong AI driver

Many still view Amazon mainly as a retailer. However the key long-term holding reason lies in its cloud division, Amazon Web Services. Growth is picking up speed. First-quarter AWS revenue climbed 28 percent year over year to 37.6 billion dollars, the fastest pace in 15 quarters and ahead of 24 percent in the prior quarter and 20 percent before that, bringing AWS to a 150 billion dollar annual revenue run rate.

It is uncommon for a business this large to expand at such a rate, and the prior time growth reached this level AWS was about half its current size, noted Amazon CEO Andy Jassy during the earnings discussion.

Artificial intelligence fuels the momentum. AWS AI revenue has risen from near zero three years ago to an annual run rate above 15 billion dollars, with its order backlog reaching 364 billion dollars before adding a recent Anthropic agreement exceeding 100 billion dollars.

AWS stands as Amazon fastest-growing and most profitable segment. It accounted for about 21 percent of Amazon 181.5 billion dollars in first-quarter revenue yet roughly 59 percent of operating income, pushing overall operating margin to a record 13.1 percent.

Amazon is also developing more of the underlying hardware. Its custom chips now exceed a 20 billion dollar annual revenue run rate, up nearly 40 percent from the previous quarter. The company reports more than 225 billion dollars in commitments for its Trainium chips.

Creating its own chips reduces reliance on external suppliers and, according to management, saves tens of billions in capital spending annually while boosting AWS margins by several percentage points over time.

The expense of expansion

Still, heavy investment will be required to seize this growth chance.

Amazon expects to spend about 200 billion dollars on capital expenditures in 2026, including 43.2 billion dollars in the first quarter, primarily for AWS and AI. This outlay has largely eliminated free cash flow, which fell to about 1 billion dollars over the past 12 months, far below prior levels.

Management views the outlay as worthwhile.

We see this as a truly once-in-a-lifetime chance where every known application will be reinvented, Jassy stated on the call.

What valuation does this growth story carry?

Amazon price-to-earnings ratio sits near 31. Shares are not inexpensive yet not overpriced either.

Certain risks deserve attention, mainly tied to the spending. Should AI returns fall short of expectations, extended heavy investment could weigh on profits and cash flow longer than desired. Component costs are also rising, with Jassy noting memory prices have increased sharply as demand exceeds supply.

Even so, if selecting one AI stock to purchase and hold for the next decade, this appears the strongest choice.

Amazon operates the largest cloud platform globally and shows accelerating momentum. Its backlog is expanding rapidly. The company is also designing more of its own chips, which should gradually lower costs. Ultimately the substantial spending represents the price of leading in what Jassy describes as a once-in-a-lifetime opportunity. Few firms can sustain such investment as effectively as Amazon, given its cash generation.

The path will include bumps, as recent weeks illustrate. Over the next 10 years, however, Amazon stock appears positioned for solid results from current levels.

Should investors purchase Amazon shares now?

Before acquiring Amazon stock, review this:

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Daniel Sparks and his clients hold no positions in any mentioned stocks. The Motley Fool maintains positions in and recommends Amazon. The Motley Fool maintains a disclosure policy.

The views and opinions expressed here are those of the author and do not necessarily reflect those of Nasdaq, Inc.