Remember when Amazon (AMZN 2.29%) was best known for selling books online? Honestly, it doesn't seem like it was that long ago. But over the last two decades, Amazon has transformed from an online bookseller to a technology behemoth.
The company dominates the e-commerce sector. There is almost nothing you can't find available for purchase (with free shipping) on Amazon. In addition to its online marketplace, Amazon also produces movies and television, and it has a budding advertising business that is definitely giving its competition reasons to worry.
Amazon conducted its annual meeting of shareholders this week. And while management applauded themselves about all the progress the company has made across its core business segments, shareholders seemed laser-focused on one topic: artificial intelligence (AI).
Image source: Getty Images.
Over the last several months, Amazon's primary cohorts, namely Microsoft and Alphabet, have been investing significant capital into AI applications. So, what is Amazon doing about it? Let's find out.
What is artificial intelligence?
This is a question that seems basic, but it's not. A simplified explanation of artificial intelligence is using machines to answer questions or perform tasks instead of humans. Computers have the technological ability to process loads of information, and do so rather quickly. Over time, computers can learn and become "smarter" per se.
The applications for AI seem endless. Companies of all sizes and across all industries have numerous use cases for this type of technology. One of the most popular AI tools on the market is called ChatGPT. ChatGPT was released commercially in recent months by a company called OpenAI.
Following its broad release, Microsoft swiftly acted and made a multibillion-dollar investment in OpenAI. Since its investment, Microsoft has announced several use cases to integrate ChatGPT into its core suite of products, putting its competition on notice.
In a similar vein, Alphabet followed Microsoft with its own headline-grabbing move: a $300 million investment in a competing company called Anthropic. What's even more incredible is Anthropic just announced another $450 million funding round earlier this week.
What is Amazon's plan?
The billions of dollars being injected into AI start-ups is primarily coming from companies, as opposed to venture capital firms or private equity. Don't get me wrong: Silicon Valley isn't struggling for AI dealflow. But I find it intriguing that large corporations are the ones leading the charge from an investment standpoint in AI. Other notable companies participating in these investments include Salesforce.com and Zoom Video Communications.
So where has Amazon been? Investors got right to the point during Amazon's annual meeting of shareholders, peppering CEO Andy Jassy with questions about the company's AI roadmap. As a reminder, before Jassy took over from longtime CEO Jeff Bezos, he was the former head of Amazon's cloud unit, AWS.
AWS is an incredibly robust piece of technology and on pace to become a $100 billion revenue stream for the company. Why do I bring this up? Because, for me, as a shareholder, Jassy is exactly the person I want to hear from as it pertains to AI.
Jassy begun by explaining to investors that Amazon is not late to the game at all. In fact, the company has been investing in AI for over 20 years. When you go on Amazon to order a product, you likely are fed similar products to purchase.
Additionally, Amazon promises two-day (or same-day) delivery on many of its products. It's able to do this by leveraging robotics in its fulfillment centers that are run on complex algorithms. This is all AI at work. And this is stuff Amazon has been executing for several years.
Jassy referenced the recent demand in AI as a "new inflection point." More specifically, he went on to speak about how AI will be used in computer models to help make inferences and predictions. Further innovation to semiconductor chips will be needed for this type of computing. As a result, Jassy explained that AWS is building customized chips for the myriad applications AI presents.
Does it make the stock a buy, or is it hype?
To be blunt, AI is not hype. However, investors need to be very careful of where to look for AI exposure in the markets. Companies like Nvidia will be major winners as AI begins to take shape. But after a pretty intense run-up on the stock, one could argue that the AI tailwinds are priced into Nvidia stock to some degree.
On the other hand, unlike its big tech cohorts, Amazon stock hasn't really moved on any AI news. Sure, the stock is up 40% year to date. But a lot of that has to do with melt-ups in the Nasdaq in general, which is up 25% this year.
As a shareholder, I am compelled to scoop up more shares in Amazon as I dollar-cost average into a core position. The company already has a stable e-commerce business, as well as a growing cloud segment in AWS. Furthermore, it's clear that AI will be a large-enough market to have multiple winners. Now that Jassy has revealed some of the foundation for Amazon's foray into AI, particularly machine learning and chips, both of which will fuel AWS to an even larger business, the stock seems more compelling than ever.
