Market researchers at PwC estimate that the greatest economic gains from artificial intelligence (AI) will take place in China and North America, and this could equate to over $10 trillion in economic value. PwC not only sees AI enhancing products but also making them more affordable, which could stimulate consumer demand.
Many companies across different industries will be beneficiaries of this technology, but a team of Motley Fool contributors sees a particularly bright future for JD.com (JD 0.20%), Walmart (WMT 0.46%), and Amazon (AMZN -2.56%). Let's see why they believe now is the right time to buy these top stocks.
AI is boosting this e-commerce giant's profits
John Ballard (JD.com): JD is one of the leading e-commerce platforms in China with over $150 billion in trailing-12-month revenue. However, the stock is trading down 66% from its previous highs. The weak economy in China pressured revenue growth in 2022, but considering the improvements JD is making to grow margins using AI, the stock could be a bargain.
AI helps JD anticipate demand and optimize its inventory, which has reduced inventory turnover by 30 days. So it's no surprise to see profits improving. While revenue grew just 1.4% year over year in the first quarter, adjusted net income nearly doubled to $1.1 billion.
During the first-quarter earnings call, CEO Lei Xu suggested further profit growth awaits, while also pointing to the company's advantages that will allow it to deliver the returns investors expect. "On top of our continuous efforts to optimize costs and efficiency, we are committed to providing users with best-in-class product offerings, prices and shopping experiences, addressing user demand on all fronts, including superior selection, speed, quality, and value," he said.
The stock's low price-to-sales ratio of 0.38 appears to significantly undervalue this leading e-commerce platform.
AI helps this retail heavyweight manage inventory
Jeremy Bowman (Walmart): Walmart probably isn't the first company that comes to mind when you think of an AI stock. The retail giant has a stodgy reputation, but it has evolved with the times, embracing omnichannel retail and harnessing technology to drive its advertising business and third-party marketplace.
When it comes to AI, Walmart also has some big ideas. The company has more data on shopper habits than practically any other company, giving it an advantage with artificial intelligence -- and it gets even better as the size of the dataset increases. The company uses machine-learning algorithms to reduce out-of-stock items, and its Sam's Club warehouses use autonomous floor scrubbers with attached inventory scanners that transmit current inventory levels. The scanners are capable of seeing items that are hidden toward the back of the shelves.
Walmart has also applied AI to its shopping app, so it can recognize when a customer last ordered a product and whether it's still appropriate. If it's something like diapers, for example, the customer may need a new size. Walmart also has a research arm, called Intelligent Retail Lab, that's developed AI-enabled cameras, interactive displays, and a large data center.
The ability to invest in technology like artificial intelligence also plays into Walmart's competitive advantages as it has the economies of scale to leverage such investments and differentiate itself further from smaller retailers.
As Walmart continues to diversify into revenue streams like e-commerce and advertising, expect to see more such investments in artificial intelligence. Though these moves will mostly be happening behind the scenes, Walmart has the capital and scale to leverage the new technology in a way that few other retailers can.
Amazon sees AI opportunities in all of its businesses
Jennifer Saibil (Amazon): Amazon may not have started the AI craze, but it has invested in its own AI functions for decades. It uses AI to recommend products to customers, to get products to customers faster, and more.
In his 2022 shareholder letter, CEO Andy Jassy announced that Amazon was working on its own large-language models for Amazon Web Services (AWS). Large-language models power generative AI like ChatGPT, and Amazon is investing in its AI for AWS customers by generating code and other services.
It also uses AI to power Alexa, its voice-operated assistant. Just a few weeks ago, Amazon excited investors again with the release of several new Alexa-enabled devices from the Echo line.
These steps were greeted with enthusiasm by investors, not only because they can transform Amazon's business in the new AI-powered world, but also because investors have recently viewed Amazon as being in a funk. With decelerating sales growth and an unusual net loss in 2022, there hadn't been much to be excited about in the near term. As Amazon struggled to build on pandemic gains and cut out unnecessary expenses, its stock lost 50% of its value in 2022.
But that's changing, in large part to its embrace of AI, and Amazon stock is gaining momentum. It's up 49% so far in 2023, making up a good portion of its lost value.
Amazon has been one of the best stocks to own ever, and there's good reason to believe it can continue to reward investors for decades. AI is only one of many reasons to be confident in what Amazon stock can do, and with the stock about flat over the past year, it's a great time to buy.
