The latest advances in artificial intelligence (AI) have had a profound impact on the tech landscape, minting a new generation of trillionaires in the process. The ability of these advanced algorithms to create new content, streamline processes, and increase productivity will usher in the fourth industrial revolution, according to many experts.
Apple, Nvidia, and Microsoft are the world's three most valuable companies, sporting market caps of more than $3 trillion. What members of this tenacious trio have in common is that they're all on the cutting edge of AI. It isn't a leap to suggest that future members of the $3 trillion club will earn their admission into this elite fraternity by leveraging AI.
One company leading the charge in AI research and implementation is Amazon (AMZN 0.69%). The company is well-positioned to reap the benefits of its foray into AI, which will ultimately help secure its membership in the $3 trillion club by 2027. Let's take a look at how AI will fuel its ascent.
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How Amazon is supercharging its business with AI
Amazon has a long track record of deploying sophisticated algorithms to improve its processes and make its business more efficient. However, the company is leveraging advances in generative AI to take that to the next level.
For example, Amazon's advances in the field of AI-powered robotics "simplify stowing, picking, packing, and shipping processes," according to CEO Andy Jassy. As a result, fulfillment processing time has been reduced by up to 25%. Fulfillment costs represented more than 10% of Amazon's total operating expenses last year, so even small improvements in efficiency can have a profound impact on the bottom line. The company continues to increase automation in its fulfillment network, which will ultimately boost profits.
One of the keys to Amazon's ongoing success is putting the right products in front of the right consumers at the right time. The company has long employed algorithms to increase the relevancy of its product recommendations, but Amazon is using advances in AI to kick that up a notch. Additionally, the company has launched Rufus, its generative AI-powered shopping assistant, across all of its major markets, helping shoppers find what they want and thereby increasing sales.
The company has been hard at work developing a suite of generative AI-powered tools that curate display, video, and audio advertising to help its third-party merchants succeed. For example, its video generator can use a single product image to "curate customer AI-generated videos." More than 60% of Amazon's sales come from third-party sellers, so by helping its merchants succeed, Amazon also succeeds.
The most obvious way the company will benefit from advances in generative AI is by hosting AI functionality in the cloud. One of the biggest stumbling blocks to adopting AI is having access to the data necessary to create generative AI models. Training the large language models (LLMs) that underpin AI requires at least 1 billion data points, which means only companies with access to magnitudes of data -- like Amazon -- can create top-shelf AI models.
Amazon Web Services (AWS) is the world's largest cloud infrastructure service and continues to deliver AI capabilities to its cloud customers at scale. Jassy said (emphasis mine), "In the past 18 months, AWS has released nearly twice as many machine learning and generative AI features as the other leading cloud providers combined."
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Furthermore, the company offers one of the largest repositories of widely used AI models available on its Amazon Bedrock platform. These include LLMs from AI21 Labs, Anthropic, Cohere, Meta Platforms, Mistal AI, Stability AI, and -- of course -- Amazon's home-grown AI models.
Finally, for price-conscious cloud customers, Amazon has developed its own custom AI chips -- Trainium and Inferentia -- that help those on a budget reap the benefits of AI.
The breadth of its offerings will no doubt convince many of its customers to join the AI revolution, benefiting Amazon in the process. AWS generated 17% of Amazon's revenue and 62% of its operating profit so far this year. By providing the largest selection of AI offerings, the company is fueling growth in its biggest cash cow.
While there are more, these are just a few examples that illustrate the many ways Amazon is using AI to supercharge its results and take its business to the next level. These initiatives will play a part in helping secure its membership in the $3 trillion club.
The path to $3 trillion
Amazon currently has a market cap of roughly $2.39 trillion (as of this writing). This implies it will take stock price gains of roughly 25% to push its value to $3 trillion. Wall Street is forecasting that Amazon will generate revenue of $638 billion in 2024, giving it a forward price-to-sales (P/S) ratio of roughly 3.4. Assuming its P/S remains constant, Amazon would have to grow its revenue to roughly $799 billion annually to support a $3 trillion market cap.
Wall Street is currently forecasting sales growth for Amazon of 11% annually over the next five years. If the company can achieve this growth rate, it could achieve a $3 trillion market cap as early as 2027. It's worth noting that Amazon has grown its annual revenue by roughly 442% over the past decade, so Wall Street's expectations could well be conservative.
Furthermore, at roughly 3.4 times forward sales, Amazon is a bargain compared to Nvidia and Apple, which carry forward multiples of 17 and 8, respectively.
That's an attractive price to pay for a company with so many ways to profit from the accelerating adoption of AI.
