It’s quite incredible how Amazon.com (NASDAQ:AMZN) has maintained its robust growth rate, despite its massive scale. Note that last year the net sales jumped by 31% to $232.9 billion. Even much smaller companies have challenges growing at this pace.
Source: Shutterstock In light of this, it should be no surprise that AMZN stock has become one of the world’s most valuable, not far behind Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL). Currently, the market cap is over $900 billion.
Now, to keep up the growth, I think a key will be AI (Artificial Intelligence). According to Gartner, the spending is expected to grow at a CAGR (compound annual growth rate) of 18% to $383.5 billion by 2020. Yes, this is a category that will move the needle for AMZN stock.
The good news for the company is that it has been using AI since its early days. An example of this is its leveraging of customer data to create product recommendations.
But there is certainly much more. In fact, in Jeff Bezos’ latest shareholder letter, he made it clear that AI is a major priority.
So, then, what are the key areas where this technology will help Amazon stock? Well, let’s take a look at three:
Amazon Stock & AI: Alexa and Echo
Alexa and the Echo are the most notable examples of AI from AMZN (by the way, Bezos has remarked that the Star Trek computer was the main inspiration for these technologies). Alexa is the core AI engine and Echo, of course, is the smart speaker. Since 2014, this combo has seen standout results. Consider that there have been over 100 million Alexa-enabled devices rolled out.
Critical to the success of the Alexa engine is that it is open to third-party developers, which has resulted in ongoing innovation. Keep in mind that the system has over 80,000 skills. What’s more, Alexa is collecting huge amounts of data, which is making the system smarter and smarter.
But, of course, the technology can position AMZN for a large market opportunity for “conversational commerce.” Based on research from OC&C Strategy Consultants, the forecast is that spending will hit $40 billion in the US by 2022.
Amazon Stock & AI: Robots
AMZN got into this industry through its acquisition of Kiva Systems in 2012. The technology has become an essential part of the automation of its fulfillment centers (there are now more than 100,000 robots).
But for robots to be effective, there needs to be sophisticated AI systems. The main reason is that these devices must work alongside people, which poses safety issues. But AI technologies — like deep learning and computer vision — are a big help.
For the most part, AMZN has been secretive with its robot strategy. But if you go to the division’s website, there is a clear message of why AI is a major focus: “Amazon Robotics automates fulfilment center operations using various methods of robotic technology including autonomous mobile robots, sophisticated control software, language perception, power management, computer vision, depth sensing, machine learning, object recognition, and semantic understanding of commands.”
Amazon Stock & AI: Amazon Web Services
This is perhaps the most important driver for AI. Actually, AWS allows AMZN to benefit from the efforts of thousands of companies in the category. After all, AI requires high-powered storage and processing. And yes, with AWS, it’s fairly easy to access this as a service. It’s not uncommon for the costs to be a tenth of what they would be for more traditional options.
AWS also has a sophisticated AI platform, called SageMaker. Launched 18 months ago, it has quickly become a popular tool for companies that are putting together their own AI projects. Bezos’ shareholder letter notes: “SageMaker removes the heavy lifting, complexity, and guesswork from each step of the machine learning process — democratizing AI.”
In the years ahead, AI will be a big part of the growth.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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