One of the biggest trends in recent years is the proliferation of artificial intelligence (AI), creating new opportunities for savvy investors to ride on for the next few years.
But not all opportunities are created equal, and the casualties of AI companies will be high. Thus, investors should be cautious with their investment choice in this area, focusing solely on companies best positioned to win in the long run.
This article will explore one company well positioned to leverage the AI wave to greater heights -- Amazon (AMZN 1.10%).
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Amazon has vast exposure to AI
Amazon is a company that needs little introduction, as its e-commerce business is well established in the U.S. and globally. But not many know that the tech company is also a significant user of AI technology and a provider of AI products and services.
Let's start with e-commerce. Amazon relies heavily on AI to improve its efficiency and customer experience. For example, Amazon uses AI to provide personalized recommendations to users, which will help improve user satisfaction and retention. Besides, the e-commerce company uses AI in almost every aspect of its operations, including warehouse operations (think automation and robotics) and logistics. With the help of AI, Amazon can do more (and better) work with fewer resources, and the benefits flow directly into its top and bottom lines.
While the impact of AI on Amazon's e-commerce business is indirect, AI's influence on Amazon's cloud computing business (AWS) is direct and far-reaching. One thing is that implementing AI in enterprises will naturally result in higher demand for computing and storage capacity from AWS. Besides, AWS can provide various AI services -- such as machine learning, computer vision, language AI, etc. -- to help enterprises get up to speed with their AI implementation. These services will continue to expand in the coming years, assisting AWS to gain market share of enterprises' IT budget.
In short, Amazon stands to reap enormous benefits from the use of AI technologies and by selling these technologies to clients.
Amazon's optionality on AI
Amazon has benefited over the years from the advancement of AI, but the best days of AI lie ahead as the technology continues to evolve and mature. The improvement in AI technologies and algorithms, the advancement (and cost reduction) in computing power, the exponential growth in the availability and quality of data, and the emergence of new business models mean that the prospects of AI will inevitably improve over time.
And this matters to Amazon, since it is strategically positioned to benefit from this optionality. To this end, Amazon's culture of experimenting with the latest ideas, product innovation, and customer-centricity provides the proper foundation for developing and launching new AI products and services. Besides, Amazon has access to a wide range of data through its e-commerce platform, AWS, Alexa, and other subsidiaries, serving as a valuable resource for improving AI algorithms.
And let's not forget Amazon's other valuable resources, such as cash on hand, customer relationships, and partnerships, which will be critical in developing new AI products and solutions.
While it's too early to pinpoint precisely which area of AI Amazon will benefit most in the coming years, some areas of speculation include robotics, autonomous vehicles, smart home and IoT, and personal virtual assistants.
In summary, the future of AI will be massive, and Amazon is well positioned to benefit from this optionality.
Amazon's stock is available at a reasonable price tag
Usually, investing in an up-and-coming trend like AI will require investors to pay a premium for companies in this industry.
For example, AI-related companies like Palantir Technologies or C3.ai come at a hefty price, currently trading at price-to-sales (P/S) ratios of 18.4 and 10.1, respectively. Besides, both companies are unprofitable, which is common among these emerging tech companies. Thus, investors usually end up with a high-risk (and hopefully high-potential) investment when betting on these companies, a proposition that is unattractive for conservative investors.
Fortunately, investors don't have to incur such risks when buying Amazon's stock. Amazon has a P/S ratio of 2.5 times, which is lower than its five-year average of 3.4 times. This ratio compares favorably with those of Palantir and C3.ai. On top of that, Amazon is a well-established, profitable company.
With Amazon, investors can have their cake and eat it too.
