Jeff Bezos wrote to Amazon (AMZN 0.59%) shareholders in 1997, "This is Day 1 for the Internet, and, if we execute well, for Amazon.com." Twenty-six years and more than $1.3 trillion in additional market cap later, it's fair to say that the company executed well.
The "Day 1" mindset has permeated Amazon's culture ever since. Amazon's goal is to always think like a start-up and to continually innovate no matter how big it grows. Bezos wrote in 2016 that it's important to "embrace powerful trends quickly." He added, "We're in the middle of an obvious one right now: machine learning and artificial intelligence."
You could even say that it's still Day 1 for artificial intelligence (AI) and -- if it executes well -- for Amazon. There's at least one big reason to think the company will be able to be as successful with AI as it has been with the internet. Investors take note: Amazon could have an AI game-changer on the way.
NASDAQ: AMZN
Key Data Points
Amazon's Project Nile
Business Insider recently reported that Amazon has a major initiative underway called Project Nile. The purpose of this project is to develop a generative AI search engine to help Amazon customers shop online.
How will this be different from Amazon's current search functionality? Suppose a customer asks for a recommendation about what kind of coffee maker to buy. The AI assistant would give multiple options for coffee makers, comparing important information such as features and customer reviews. Customers wouldn't need to visit the pages for each individual product as they must do today.
More importantly, Project Nile will allow customers to have a conversation with the AI shopping assistant. In our coffee maker example, they would be able to ask more questions about the details of specific types of coffee makers. The AI assistant would be able to read through all of the information and quickly summarize the key points the customer needs to know about. It would also have the capability to make personalized recommendations based on customers' previous purchases and items on their wishlists.
Many of the details about Project Nile remain confidential. However, Amazon's head of search and Alexa shopping, Joseph Sirosh, reportedly said at an internal town hall meeting earlier this year that Project Nile can be described as "AI transforming shopping."
In Amazon's second-quarter conference call, executives primarily played up the potential for generative AI on its cloud hosting platform Amazon Web Services (AWS). There were a few veiled references to other internal initiatives with specifically mentioning Project Nile, though. CEO Andy Jassy said in the Q2 call that "every single one of our businesses inside of Amazon, every single one, has multiple generative AI initiatives going right now." He added that some of them go "to the absolute heart of every customer experience in which we offer."
Why it could be huge for Amazon
AWS has been Amazon's main growth driver in recent years. However, the company made more than 80% of its total revenue in Q2 from its North American and international e-commerce businesses.
Mobile searches currently account for close to 80% of total searches on Amazon's e-commerce platform. The problem, though, is that far fewer searches result in actual sales on mobile devices than they do on Amazon's website.
Project Nile could change that dynamic. An AI-powered shopping assistant holds the potential to make mobile shopping much easier. Customers should be able to find and compare products more quickly than they can now.
Even a modest increase in the mobile conversion rates could significantly boost Amazon's revenue. It's not surprising that Project Nile is a top priority for Jassy and the rest of the company's senior management team.
Does this AI development make Amazon stock a buy?
Project Nile truly could be a game-changer for Amazon if the AI shopping assistant achieves its potential. But does this AI development make Amazon stock a buy? I don't think so for a simple reason: Amazon is a buy even without it.
AWS has tremendous growth prospects, in large part because of the AI boom. Amazon's profitability should continue to improve significantly in the coming quarters thanks to its streamlining and cost-cutting initiatives. These two factors are reasons to buy the stock right now all by themselves.
That said, even the little we know about Project Nile so far bodes well for Amazon's e-commerce growth, especially on mobile devices. For investors looking for yet another reason to buy the stock, the new AI assistant that's on the way down the road could be a good one.
