One of the key reasons Amazon (NASDAQ:AMZN) stock is one of the most valuable on Wall Street — with a market cap of $884 billion — is that the company is willing to take bold initiatives. True, sometimes things fall short, as seen with the move into the smartphone business.
But for the most part, CEO Jeff Bezos has been able to make the right strategic decisions and deploy resources in a disciplined way. Perhaps the best example of this is AWS (Amazon Web Services). Without this, AMZN stock would likely have a much lower valuation today.
The irony is that the company was not the ideal player to be the winner in the cloud. It should have been from a tech operator like Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) or IBM (NYSE:IBM). These companies had the advantages of large enterprise customer bases as well as strong infrastructures and trusted brands.
AWS Enables Aggressive Investments
Bezos saw that the cloud was the future of business software. Customers would greatly benefit from the access to a wide assortment of services at a low price. There would also be no need to pay for the hardware, servers and other technologies.
The result is that AWS has become a juggernaut, making Amazon the cloud’s force to be reckoned with in the #1 position. In the latest quarter, revenues from the business jumped by 49% to $8.38 billion or a run-rate of more than $33 billion. The high operating income from the cloud has also made it possible for Amazon to aggressively invest in other opportunities, such as health care, delivery and online advertising.
OK then, so what’s next? Can there be another AWS that will continue to power AMZN stock? Well, I think so. And it’s AI (Artificial Intelligence).
AI Powered Amazon’s Original Book Recommendations
Keep in mind that this technology has been a part of the company’s focus since its early days. A form of AI was essential for creating the recommendation system for the original online bookstore, which helped propel sales.
But of course, the company has continued to push innovation. In fact, a big part of this has been leveraging the huge AWS customer base. To this end, AMZN has been adding sophisticated AI features, including developing a system called SageMaker that makes it easier to create sophisticated models.
Yet the most notable example of AMZN’s AI is Alexa. Since the launch of this platform five years ago, there have been over 100 million devices shipped. There has also emerged a powerful ecosystem of developers, who have created more than 80,000 skills.
According to Chris Nicholson, CEO and founder of Skymind, an AI infrastructure developer, in an email interview: “Amazon is to the smart home what Tesla is to smart cars. It has more devices being used out in the world than any one else, and that gives it a huge advantage in the amount of data it can gather and use to train its AI. Amazon made a play for the home with Alexa and Ring, and it dominates that space like Microsoft used to dominate operating systems.”
The big play for Alexa is as next-generation e-commerce platform. It’s all part of something known as conversational commerce. And it is likely to be a massive market. According to OC&C Strategy Consultants, the spending is forecast to reach $40 billion by 2022 in the U.S.
Bottom Line On Amazon Stock
It’s true that there is lots of hype with AI. Many companies are jumping on the bandwagon so as to get funding. Investors looking for a play in the AI space shouldn’t overlook Amazon stock.
In artificial intelligence, Amazon.com is the real deal. More importantly, it has the massive platform — with huge amounts of data — to be highly competitive in this category. And as seen with AWS, the company knows how to monetize technologies. Thus, when looking for a solid play on AI, AMZN stock is certainly a solid choice.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.