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Amazon Web Services Expanding With Artificial Intelligence

- By Julie Young

Amazon Web Services is increasingly gaining industry attention, and the company's recent hire of Alex Smola to lead the artificial intelligence initiative for AWS is expanding even more its infrastructure as a service cloud offerings. While Amazon Web Services has been around since 2006 its customer base varies widely from that of large cloud leaders Microsoft (MSFT) and IBM (IBM). Additionally, a large part of the Amazon Web Services business includes its own web business Amazon.com (AMZN).


In the first quarter, AmazonA reported sales of $29.13 billion with sales from Amazon Web Services accounting for $2.57 billion. The majority of AWS customers are startups seeking low-cost solutions without the burden of a full suite of enterprise infrastructure. Currently AWS accounts for about 2% of total sales in the public cloud market and approximately 10% of sales in the cloud IaaS market, all according to a Forbes report titled "Roundup of Cloud Computing Forecasts and Market Estimates, 2016." With Amazon's cloud computing business, it continues to seek new ways to improve its offerings and grow its market share.

On June 15, Smola reported he would be joining Amazon to lead its artificial intelligence initiatives mostly focused within the firm's cloud machine learning platform business. With this effort, Amazon will be increasing its competitiveness in the infrastructure as a service artificial intelligence market. Current competitors are Microsoft Azure, IBM SmartCloud and Google Compute Engine, all offering different variations of artificial intelligence technology.

A report from CNBC on Thursday gave more insight into Smola's experience and new role.

While the increased focus on artificial intelligence and expansion for AWS will help grow its business, it will have tough competition compared to the capabilities of IBM and IBM's Watson.

In artificial intelligence, IBM reported on June 17 an increased focus on developer initiatives for artificial intelligence growth specifically in the infrastructure as a service business. IBM's developer network initiative was announced in India at IBM DeveloperConnect with an audience of more than 10,000 developers.

Despite the competitive challenges, Amazon's growth in the business overall appears to be helping fuel its Amazon Web Services development. As a leader in IaaS, Amazon's AWS business grew revenue 64% from the comparable first quarter. Firmwide revenue for the first quarter was up 28% from the comparable quarter. Amazon's earnings per share also improved significantly in the first quarter at $1.07 up from -12 cents in the comparable quarter.

Amazon continues to be a viable investment in the cloud computing business; however, with AWS only accounting for 10% of total revenue, the value of the company is more dependent on its ecommerce services. Ecommerce services have been growing steadily. Amazon.com's North American sales were up 27% in the first quarter and international sales were higher by 24%.

Steady growth for the stock is expected to continue with Yahoo! (YHOO) Finance estimates showing analysts reporting estimated revenue growth of 25% for 2016 and 21% for 2017. Earnings per share growth estimates are currently at 332% for 2016 and 84% for 2017. Consistent with the revenue and earnings growth, analysts project the stock price to gain in the near term. Analysts have an average estimate for the stock price of $800 with 14% upside potential from its price of $705.55 Thursday. Additionally, analysts have a $1,000 high target price, which gives the stock upside potential of 42%. Currently the added investment in AWS AI is just another reason for investors to buy into this fast growing technology stock.

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This article first appeared on GuruFocus.