The Amazon share price has never been higher. Here’s why it still may be cheap

Over recent days, Amazon (NASDAQ: AMZN) stock hit a new all-time high. In fact, Amazonâs long-term performance has been nothing short of spectacular. Its share price gain means that $1 invested in Amazon when it listed in 1997 is now worth over $2,800.

Sure, there are still no dividends. With that sort of price gain, though, I doubt many shareholders are bothered.

In fact, they may well prefer Amazon to keep doing what it has been doing with its spare cash: investing it in further business growth, rather than using it to fund dividends.

Having recently hit an all-time high, it might seem hard to imagine that Amazon stock is even now a potential bargain. But I think it may be.

The lens matters

That depends in part on what approach one takes to investing.

From a short-term perspective, the price-to-earnings ratio of 36 may not seem cheap. (Then again, in the current market, it does not seem outrageously high either for a high-growth company with some massive competitive advantages).

But as an investor, I do not worry about the short term when deciding how to construct my portfolio. Instead, I take the long-term approach to investing.

Over the long term, I think Amazon could yet go from strength to strength.

Building on its strengths

Amazon has been very innovative over many years. By experimenting with new businesses, it has been able to expand its existing competitive advantage.

It has also not been afraid to pull the rug from ventures that it decides are less promising than hoped. I see that as a sign of confident and decisive management.

So its online retail and marketplace has grown bigger and picked up lots of extra elements along the way, from bricks-and-mortar shops to its own cargo airline.

That alone could mean that the historic heartland of Amazonâs business can grow strongly over the long term. Economies of scale and its strong industry position could help it grow profits faster than revenues.

Meanwhile, the bigger story from a long-term perspective may be about AWS (the old Amazon Web Services).

AI is rocket fuel for an already brilliant business

Before the AI gold rush, AWS was already a successful, high-growth business. That has not changed and its server hosting business remains massive.

But AI demand has taken that to a whole new level.

How big?

Put it this way â in the third quarter, Amazonâs operating income was $17.4bn. Of that, AWS was responsible for $11.4bn. That means that around two-thirds of Amazonâs total operating income in its most recent quarter came from AWS alone.

Excitement about the growth potential for AWS explains why the Amazon share price hit an all-time high. AWS sales were up by a fifth year on year.

Can Amazon’s AI-fuelled growth last?

The medium- to long-term demand picture for AI-related hosting remains unclear. I also see a risk competitors may try to win market share by competing on price, potentially eating into AWSâ profitability.

Meanwhile, Amazonâs retail business faces ongoing risks from US tariff uncertainty.

But from a long-term perspective, given its competitive advantages including client base and proven model, I think Amazonâs current share price could come to be seen as a bargain. I see it as a share that investors with a multi-year timeframe should consider.

The post The Amazon share price has never been higher. Hereâs why it still may be cheap appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.