One can forgive some investors for perceiving Amazon (AMZN +0.53%) as an "everything stock." It pioneered the e-commerce and cloud computing industries, and its position in both industries prompted it to invest heavily in artificial intelligence (AI). This has included robots, satellites, and the AI chips themselves.
Despite this seeming dominance, Amazon is not an everything company. While it should continue to benefit investors in the long term, investors should not own the consumer discretionary stock exclusively. Here's why.
Image source: Amazon.
Diversification and Amazon
First, the adage of not putting all your eggs in one basket remains critical in the case of every stock. Investors cite Enron, whose falsified financials led to its rise and fall. A more common possibility is that a company suffers simply because it fails to live up to investor expectations despite the company's best efforts.
In Amazon's case, both are highly unlikely scenarios. Nonetheless, the remote possibility of such occurrences makes it risky to have 100% of one's assets in Amazon stock.
Secondly, companies tend to succeed by excelling at one thing, or possibly a few things. However, being good at everything is not likely, even for Amazon, and with robots, satellites, and AI chips, it is at a competitive disadvantage.
Since Tesla has long produced hardware (mostly automobiles), it could have an easier time adapting its AI to robotics. Likewise, even though Amazon is considering a $9 billion deal to acquire satellite communications company Globalstar, one of Elon Musk's other companies, SpaceX, has a head start on satellite technology.
Furthermore, even a legacy chipmaker like AMD has had to prioritize AI accelerators to challenge Nvidia's dominance in that field. That reality does not bode well for Amazon.
NASDAQ: AMZN
Key Data Points
Additionally, the nature of Amazon's financials provides no visibility into such endeavors. Due to Amazon's $2.5 trillion market cap, its financial reporting is high-level and typically vague.
For example, for its various businesses, investors only receive overall revenue numbers. That does not include any details on what it spends on research and development for robots, satellites, or AI chips.
Also, since those are not revenue sources, investors do not know how those contribute to Amazon's overall financials. That reality makes it extremely difficult to invest in Amazon except for its e-commerce and Amazon Web Services (AWS)-related businesses.
Amazon is not an everything stock
Investors should not buy Amazon stock because of robots, satellites, or AI chips.
While these technologies likely contribute to Amazon's growth, they serve as inputs, and Amazon does not reveal to investors their direct costs or benefits.
Moreover, competing companies specialize in such things, and their deeper focus on those technologies fosters competitive advantages. Thus, instead of buying Amazon, investors interested in robotics, satellite development, or AI chips should consider the market leaders in those industries.
