In the summer of 2001, my wife and I took a lovely trip to Italy. We have one regret - we didn't spend enough money. The euro was at 85 cents, compared to $1.30 now. We should have brought home suitcases of Italian clothing, salami and olive oil.

Amazon.com Inc. (AMZN) may have similar regrets if it doesn't spend the rich currency it currently holds - its stock.

The company has an eye-popping price-to-earnings ratio of 50 times this year's projected earnings, a valuation four times that of the market as a whole. The company's valuation relative to the broader market has been rising since the market bottomed in November of last year.

Amazon may or may not be overvalued. It's had a high multiple for years, and both growth and margins are heading in the right direction. But the disconnect with the overall market creates an opportunity for making acquisitions with stock.

Which acquisitions, though? In recent months, Amazon's purchases have focused on additions to its Kindle e-book portfolio. Historically, it has invested in smaller e-retailers.

At present, few, if any, of the other publicly traded e-retailers are appealing targets. From eBay Inc. (EBAY) to Blue Nile Inc. (NILE), negative growth rates abound.

Retail is not Amazon's only business, however. Amazon Web Services provides enterprises with information technology services through the Internet "cloud:" computing capacity, data storage, content distribution and so on. Running applications in the cloud, rather than in local servers, can help companies cut both IT hardware and operating costs.

AWS also lets customers - predominantly small and medium-sized businesses - piggy-back on Amazon's payment infrastructure, and even its network of warehouses for "pick, pack and ship" services.

Amazon has real advantages in this area. No one has more experience with the logistics of running a Web-based enterprise. Its negative working capital is evidence it knows how to monitor and manage suppliers, customers and warehouses. Amazon can't sell customers a hardware-software-services bundle, as big competitors like IBM Corp. (IBM) can, but the hardware component of cloud computing is getting cheaper and less important.

The company doesn't break out sales or profit numbers for AWS. But AWS is in a growth area and, by virtue of its parent, has capital available. Acquisitions make good sense.

The biggest independent player in e-retail support and outsourcing is GSI Commerce Inc. (GSIC), and the leading software player is Art Technology Group Inc. (ARTG). But an Amazon takeout is highly unlikely in both cases. These firms' core customers are large merchants that will hesitate to outsource to a competitor like Amazon.

There are other directions Amazon could go, however. It could pick up companies with technology that would improve customers' e-commerce operations but would not involve AWS taking substantial control of their sales channels. To pick just one example, LivePerson Inc.'s (LPSN) software helps e-commerce sites convert more visitors into buyers, a key objective for many AWS customers.

Alternatively, Amazon could reshape AWS by deepening the software offering that sits on top of its infrastructure platform. MySQL, the popular open-source database application for cloud computing, could become available when its owner, Sun Microsystems Inc. (JAVA), is absorbed by Oracle Corp. (ORCL). Buying MySQL would move AWS away from the channel conflict of e-commerce towards pure cloud services.

It's hard to say where Amazon ultimately wants AWS to go. Using the company's high-multiple stock to get there is a good idea, regardless.

Paul Sharma, senior columnist in London, contributed to this column.

(Robert Armstrong is a senior columnist with Dow Jones Newswires. He can be reached at 201-938-2319 or by email at robert.armstrong@dowjones.com. Dow Jones Newswires is enhancing its news, commentary and analysis for the investment banking community, and is providing it on this service temporarily. Stay tuned for information on continued access to the best of Dow Jones news and opinion on companies, sectors and deals for bankers and research analysts.)

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