Despite retiring as CEO five years ago, founder Jeff Bezos still has a few passion projects at Amazon (AMZN -2.32%), including Prime Video. The streaming video service that bundles with the Prime delivery subscription has been trying to gain global market share in TV viewing through heavy investments in original content, the acquisition of the renowned MGM Studios, and inroads into expensive sports rights.
Now, Bezos has steered the division to utilize more artificial intelligence (AI) to drive user engagement. Here's what it means for the division and how it could impact Amazon stock.
NASDAQ: AMZN
Key Data Points
AI embedded into video streaming
This year, Amazon expects to spend $220 billion on capital expenditures, up from its original guidance of $200 billion. Almost all this spending is related to data center investments for AI cloud computing to serve customers like OpenAI and Anthropic.
Bezos and the rest of the Prime Video team want to leverage these AI advancements for Amazon's internal use. For example, they want to layer in more personalized recommendations on the Amazon Prime home screen, changing them entirely based on your watch history. It could also lead to AI-generated tiles that people can click to decide what to watch on Prime Video.
All this is being done to drive further engagement on Prime Video for TV households globally. Utilizing these modern AI tools serves the same purpose as sports rights at the end of the day: driving more watch hours. If total watch hours grow, Prime Video becomes more valuable to Amazon, giving the Prime subscription greater pricing power. Amazon's subscription revenues grew 12% year over year last quarter.
Jeff Bezos, Amazon executive chairman. Image source: Amazon.com.
What does this mean for Amazon stock?
These personalized recommendations may be even more important for Amazon to drive strong advertising revenue growth. Advertising revenue for Prime Video will grow as more people watch the service, driven by better-personalized advertisements enabled by AI enhancements.
This is one reason Amazon cited for its advertising segment's 26% year-over-year revenue growth last quarter. Indeed, advertisers spent $76 billion on Amazon ad services over the last year -- either on Prime Video or through shopping recommendations -- which is bringing in extremely high-margin revenue to its income statement.
Internally, Amazon can get a good return on investment on its AI infrastructure costs if advertising revenue keeps growing at a good clip. This is one reason the stock has soared to an all-time high after its latest earnings report.
