AI could be as transformational as electricity and the internet. This company has decades of experience in the field.
Artificial intelligence (AI) has burst onto the scene in a big way over the past year or so. The forerunners of modern AI have been around since the 1950s, but recent algorithms have taken the technology to the next level. What sets generative AI apart from its predecessors is not only the ability to create completely new and unique content but also to streamline and automate processes, resulting in substantial productivity increases. The potential to save time and money is significant, setting off a mad rush to adopt this ground-breaking technology.
Outspoken JPMorgan Chase CEO Jamie Dimon has never shied away from bold proclamations. In his recent shareholder letter, the enigmatic chief executive said generative AI could be “as transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing, and the internet, among others.”
While that might seem a little over the top, a similar chorus is growing among tech aficionados. Even the most conservative estimates suggest generative AI will impact the economy to the tune of $1 trillion or more over the next 10 years. Companies best positioned to ride these secular tailwinds will also reap the resulting windfall, which will ultimately benefit investors.
There will be plenty of stocks that will ultimately benefit from AI, but one I’m particularly excited about is Amazon (AMZN -1.23%).
Image source: Getty Images.
An industry leader — in more ways than one
It’s important to consider Amazon’s AI opportunity in the context of its overall business — which is considerable.
The company first rose to prominence thanks to its industry-leading e-commerce business. Amazon has long dominated this industry, accounting for roughly 38% of U.S. online retail sales in 2023, more than its next 15 largest rivals combined, according to data compiled by eMarketer. The company is expected to maintain its dominance in 2024.
Amazon has long used AI to maintain its edge over the competition. These use cases include product recommendations made to its customers, predicting and maintaining the correct inventory levels at its warehouses and distribution centers, using robots powered by AI to stock shelves and ship merchandise, and even determining the most efficient routes for its deliveries.
There’s also the company’s industry-leading cloud computing arm, Amazon Web Services (AWS). While its dominance has faded in recent years in the face of stiff competition, AWS remained the top provider of cloud infrastructure services with 31% of the market to close out 2023, with Microsoft Azure at No. 2 and Alphabet‘s Google Cloud at No. 3, with 26% and 10% of the market respectively, according to research firm Canalys. AI is central to Amazon’s AWS cloud strategy (more on that in a moment).
Finally, there’s Amazon’s digital advertising business, with ads appearing on its e-commerce website, Prime Video and Freevee streaming offerings, game streaming platform Twitch, Amazon Music, and more. The company uses AI to better match ads with their target market. The strategy has been wildly successful, as advertising services was Amazon’s fastest-growing major business segment in 2023.
The big kahuna
Lest there be any doubt, it’s AWS that represents Amazon’s biggest opportunity in the AI space.
Its fully managed Bedrock service is the foundation of its AI offerings. Like its cloud rivals, Amazon offers a library of all the most in-demand foundational AI models, including those created by AI21 Labs, Cohere, Mistral AI, Meta Platforms, Stability AI, and Anthropic, among others.
Amazon has pinned its biggest hopes on Anthropic. Just last month, the company increased its stake in the AI start-up by $2.75 billion, bringing its total investment to $4 billion. Anthropic and its Claude 3 suite of AI models are considered the leading competitor to OpenAI’s ChatGPT, which attracted a $13 billion investment from Microsoft and arguably kicked off the AI gold rush.
In addition to the AI models offered by Bedrock, Amazon also offers Titan, a suite of pre-built large language models (LLMs) of its own creation, which can be tailored to suit a wide variety of AI-focused business needs.
Late last year, Amazon unveiled the latest versions of its custom AI processors, Trainium2 and Graviton4, which were designed for training and running AI models, respectively. The company is also expanding its collaboration with Nvidia, bringing its state-of-the-art GB200 Grace Blackwell Superchip and B100 Tensor Core GPUs to AWS. The combination offers a broad cross-section of AI functionality at price points that will appeal to a wide range of cloud customers.
The company also launched Amazon Q, a generative AI-powered assistant that can be tailored to each respective business to automate and streamline processes, thereby saving time and money.
Given its broad suite of offerings and multifaceted approach to AI, there’s little doubt that Amazon will be one of the leading players in the field.
All that potential at a bargain
Despite its recent run, Amazon offers all that potential at a modest price tag. The stock is currently selling for roughly 2.7 times forward sales, a bargain compared to its seven-year average of 3.5 times sales.
This provides savvy investors with the opportunity to invest in a once-in-a-generation opportunity at a discount.
