Over the past year, investors have turned to the stocks of the Magnificent Seven in search of above-average returns – and for good reason.

Mega-cap technology companies like NVIDIA, Microsoft, alphabetAnd Meta-platforms have all the S&P500 And Nasdaq-Composite over the past 12 months. Much of these gains can be attributed to rising interest in artificial intelligence (AI), a market dominated by the Magnificent Seven.

But despite the impressive performance of the companies mentioned above, I believe another member of the Magnificent Seven is a better choice for long-term investors.

E-commerce and cloud computing giant Amazon (AMZN -0.30%) has underperformed the Nasdaq over the past year, delivering returns essentially in line with the S&P 500.

With Amazon’s share price down about 14% in the last month, I think now is a great opportunity to buy on the dip.

Let’s examine how Amazon is quietly disrupting the AI ​​landscape and assess why now is a lucrative opportunity to snap up shares at a bargain price.

Don’t call it a comeback

One of the biggest opportunities in AI is cloud computing. Amazon faces tough competition in the cloud infrastructure market from Microsoft Azure and Alphabet’s Google Cloud Platform (GCP).

Over the past 18 months, Microsoft has rapidly expanded the Azure platform thanks to the company’s $10 billion investment in OpenAI – the developer of ChatGPT. In addition, Alphabet has done a notable job of pushing into the cloud space thanks to a series of acquisitions, including MobiledgeX, Forseeti, Siemplify and Mandiant.

These moves by Microsoft and Alphabet initially seemed to hurt Amazon’s cloud revenue growth and profitability, but the table below shows some new, encouraging trends from Amazon’s cloud segment, Amazon Web Services (AWS).

Data source: Investor Relations

The numbers above show a really positive development for Amazon. Over the last year, AWS has transformed from a company that was in constant decline to one that has now grown for three consecutive quarters while significantly increasing operating profit.

Image source: Getty Images.

Amazon is a money printing machine

While it is nice to see that sales and profits are rising again, for Amazon this is only part of the great success story.

Image source: Investor Relations.

The majority of Amazon’s operating profits come from AWS, so the revival of the cloud business has a direct impact on Amazon’s cash flow profile. In the quarter ended June 30, Amazon generated free cash flow of $53 billion on a trailing 12-month basis. Moreover, with a balance sheet of $86 billion in cash and equivalents, Amazon has virtually enough funds to invest aggressively and make life difficult for its competitors.

One of the catalysts for AWS’s renewed growth is Amazon’s $4 billion investment in the generative AI start-up Anthropic.

This relationship is especially important because Anthropic trains its AI models on Amazon’s own semiconductor chips – Trainium and Inferentia. This gives Amazon a direct line to compete against Nvidia as demand for semiconductor chips continues to boom.

In addition, the company is investing $11 billion in a data center project in Indiana. In my opinion, these investments underscore Amazon’s ambitions to be competitive across the AI ​​landscape as AWS enters a new phase of its evolution.

For these reasons, I believe AWS’s revenue growth and renewed profits, as shown above, are just the beginning.

A first-class rating for investors

Amazon currently trades at a price-to-free cash flow (P/FCF) ratio of 37.1, which is less than half of its 10-year average. I find this odd considering Amazon is a much larger and far more complex company today than it was a decade ago.

AMZN Price to Free Cash Flow data from YCharts

In my opinion, investors are either overlooking or not appreciating Amazon’s foray into AI. I think the future potential of AI lies in some of Amazon’s Magnificent Seven, as many of them have significantly outperformed the markets over the last year.

In contrast, Amazon is already reaping the rewards of these AI-driven initiatives and the company has plenty of cash to fund growth for quite some time to come. For these reasons, I think Amazon is the most lucrative opportunity among mega-cap tech stocks right now. In my opinion, this is an excellent opportunity to buy Amazon stock in abundance.