Amazon.com (NASDAQ:AMZN) is one of the pioneers of the wide-scale commercialization of artificial intelligence (AI). Back in the 1990s, the company leveraged its massive data to provide personalized recommendations. It was a major differentiator and helped drive Amazon stock price higher.
But when it comes to AI, much of the innovation has come during the past decade. This has been due to the explosion of Big Data, the emergence of new AI algorithms — such as deep learning neural networks — and the increased capabilities of graphics processing units and cloud computing.
Keep in mind that Amazon’s cloud business, AWS, which continues to generate high profits that have greatly boosted AMZN stock, utilizes a great deal of AI. By using AI, AWS can easily ingest data and apply/fine-tune algorithms.
Of course, then there is Alexa, which is the core AI engine for Amazon.com’s smart speaker devices like the Echo. The system has over 90,000 skills, and there have been over 100 million Alexa-enabled devices shipped since 2014.
All this is definitely great. A study from research firm Gartner forecasts that spending on AI will grow at a compound annual growth rate of 18%, reaching $383.5 billion by 2020.
But when it comes to AMZN stock, I think it’s a mistake to assume that AI is all wonderful. The technology certainly has issues and challenges. So consider the following:
- In 2017, Amazon.com shut down its recruiting software system, which used AI. The problem is that it was biased, as it mostly chose male candidates for jobs! Even when Amazon.com changed the algorithms, the results didn’t change much.
- An article published by Bloomberg noted that ANZN has thousands of employees who analyze voice clips in order to enhance Alexa’s ability to understand people. This raises questions about whether conversations on the Echo are really private.
- Various consumer groups recently filed a complaint with the Federal Trade Commission for alleged violations of the Children’s Online Privacy Protection Act by Amazon.com’s Echo Dot Kids Edition device.
- A group of owners of AMZN stock brought up a proposal to ban the company from selling facial recognition systems to government entities. While the measure failed – getting only 2.4% of the shares of Amazon stock voted – it was still an indication of concerns about AI technology. Note that San Francisco recently instituted a ban on facial recognition, and there are likely to be more such measures passed.
It’s true that the importance of privacy is amorphous. Just look at Facebook’s (NASDAQ: FB) situation. Despite various privacy violations and breaches by FB, there has been little impact on its user growth.
But AI is likely to be different. Let’s face it, there is no opt-in when you become part of a facial recognition system’s database. Even worse, if you happen to be misidentified, you could ultimately be falsely accused of a crime.
The Bottom Line on AMZN Stock
This week, Amazon added a new feature to its Echo devices that allows users, utilizing their voices, to delete recordings of them. The move does look like a response to some of the criticisms.
Yet the company should go beyond just changing some features. AMZN should be more proactive and transparent. For example, what is its AI policy? How are its decisions made? What does it really do with the data?
The murkiness of these issues could be a threat – over the long-haul – for AMZN stock. As the company’s technologies get more ubiquitous, more and more problems involving AI will emerge. In other words, now is the time for Amazon to get serious about the consequences of AI, before they begin to threaten AMZN stock.
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.
