One of the biggest trends in this generation is the advancement of artificial intelligence (AI). In the years (if not decades) to come, AI will infiltrate almost every aspect of daily lives, impacting businesses, societies, and individuals.
Given the immense potential that AI will bring, investors must find (and invest in) the right company to benefit from this tailwind. While many may search for the next big winner, searching for well-established companies that could leverage AI to the next level may be a better strategy.
I'm talking about one of the biggest technology companies on Earth, Amazon (AMZN +5.43%).
Amazon is well-positioned to leverage AI to greater heights
Most investors recognize Amazon's leadership in the e-commerce and cloud-computing industries. But beyond these businesses, Amazon is also a leader in investing in cutting-edge technologies such as AI. The advancement of AI will further solidify Amazon's leading position in its two core businesses.
Let's start with e-commerce. Amazon already employs AI in its e-commerce operations, such as using AI (and robotics) to improve warehouse efficiency, demand forecasting for inventory management and logistics planning, and more.
The company also relies on AI to improve customer experience by providing personalized recommendations, AI-driven chatbots to improve customer service, and more. In short, AI will penetrate even deeper into Amazon's e-commerce business in the future, helping Amazon do more with less.
Similarly, Amazon's cloud-computing business, Amazon Web Services (AWS), has already benefited from the use of AI and is set to leverage the advancement of AI technology to launch new AI-driven services.
Like its e-commerce business, Amazon leverages AI to optimize its AWS infrastructure and operations. Doing so helps improve resource allocation and automate repetitive tasks, enhancing AWS performance and efficiency. More importantly, such optimization leads to lower costs, which AWS can pass on to its customers by lowering its prices.
Besides, Amazon can leverage its existing customer relationships to launch new AI and machine learning services. A recent example is the introduction of Bedrock, a cloud-based platform to help companies build generative AI applications. As AI technology advances and matures further, Amazon can use the same strategy to introduce even more products and services, improving customer satisfaction while growing customers' wallet share.
Amazon has enormous resources to invest in AI
By now, most investors would have some understanding of the immense opportunities that AI presents to businesses. However, many have not realized the enormous investments required to develop and operate a world-class AI technology platform.
Take the example of one of the most popular generative AI services, ChatGPT. It requires millions (if not tens of millions of dollars ) to train a large-scale model like ChatGPT. These investments include talent acquisition, research and development, infrastructure cost, etc.
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But that's just on the development of the technology. It will then cost OpenAI an estimated $100,000 daily to run the model as users send an ever-growing number of prompts, using up a considerable amount of computing power. If not for Microsoft's substantial capital investments in OpenAI, ChatGPT might have to slow down its expansion.
In other words, companies need top-tier talents, world-class technology, and a lot of cash to invest in the long run to build world-class AI products. Fortunately, Amazon has all of them, especially the latter.
For example, in the third quarter of 2023, Amazon had $64 billion in cash, cash equivalents, and marketable securities. It also generated $21 billion in free cash flow in the trailing 12 months.
With these resources in place, Amazon can take a more holistic approach to building AI products that are useful today and relevant to the future. Besides, it can also use its financial means to acquire leading companies to access the latest technology and top-notch talents, or enter into partnerships.
Amazon is the AI stock to buy for the next decade
AI is a transformative technology that will disrupt existing ways of life while creating new ones.
As investors, we need to be on the right side of the technology wave to benefit from it. More crucially, we need to invest in the right companies, those with the will and means to succeed in this new era.
I think Amazon is one of those companies.
