Under CEO Andy Jassy, Amazon (NASDAQ:AMZN) is continuing to make multiple moves that should tremendously boost its top and bottom lines over the longer term. These maneuvers involve the conglomerate’s e-commerce, artificial intelligence, and healthcare businesses.
As a result of Amazon’s extremely promising initiatives, I continue to believe that Amazon stock is significantly undervalued. I still believe that all investors should buy the company’s shares.
Neutralizing an E-Commerce Threat
Some on the Street believe PDD Holdings‘ (NASDAQ:PDD) Temu website could pose a major threat to Amazon’s e-commerce business. That’s because, as Investor’s Business Daily reported in May, “The Temu shopping site is drawing a following with head-turning discounts.” Of course, Temu can offer products at very cheap prices because labor costs in China are so low.
To his credit, Jassy has come up with a solution to that threat. Specifically, the U.S. conglomerate intends to launch “a shopping section” that enables American consumers to buy products directly from China. Among them are “unbranded fashion (and) home goods.” The move effectively eliminates the threat to Amazon from Temu and other similar China-based e-commerce websites. I don’t think it’s a coincidence Amazon stock climbed a significant 6.5% between June 25, the day before the news came out, and July 1.
AI Everywhere
Turning to AI, Amazon is said to be working on an AI chatbot, which is reportedly called Metis. Potentially making Metis somewhat unique is that it can use “new data” to make decisions. Moreover, the chatbot’s reported ability to develop “travel itineraries and other comprehensive plans” could differentiate it from its peers.
On a separate but related front, Amazon is reportedly looking to infuse its Alexa voice assistant with AI. Among the capabilities that Alexa could gain from such a move would be increased personalization and routines. As a result of those capabilities, Alexa could control smart devices within your homes based on its knowledge. Additionally, the devices could be used to write emails and quickly order from Uber Technologies’ (NYSE:UBER) Uber Eats.
Bank of America estimates that by charging a $5 per month subscription fee for AI-enabled Alexa, Amazon could lift its 2025 subscription sales revenue by 1.3 percentage points.
Healthcare Initiatives
Amazon is continuing to build a healthcare empire that will eventually move the needle for Amazon and Amazon stock.
Most recently, the conglomerate disclosed on June 18 that its $5 monthly prescription delivery program would immediately become available to Medicare recipients. Under the deal, users can get access to an unlimited supply of generic drugs. Since there are 50 million Medicare recipients, the change could significantly boost Amazon’s financial results over time.
Meanwhile, the company expanded in March its same-day prescription drug delivery service to both Los Angeles and New York City. In the same month, the firm announced that it would partner with Eli Lilly (NYSE:LLY) to bring the pharmaceutical’s drugs to consumers’ homes, including its popular weight-loss treatments.
As I’ve noted in the past, I expect Amazon to make similar deals with many other drug companies. As a result, the conglomerate will cut out the “middlemen,” i.e. pharmacy benefit managers, while taking much less profit than the drug store chains. Eventually, the vast majority of both drug makers and consumers will realize they can save a great deal of money by going through Amazon rather than using the current standard methods.
The Bottom Line
Under Jassy, Amazon moved effectively to largely eliminate the threat to it posed by Chinese e-commerce firms. Meanwhile, the conglomerate looks poised to build hugely successful AI and healthcare businesses.
As a result, with Amazon stock trading at a relatively low enterprise value-to-EBITDA ratio of 21 times, I continue to recommend buying the shares.
On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
