Amazon: AI To Drive Competitive Advantage

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From Seeking Alpha:

Everyone who follows the tech space knows that artificial intelligence (“AI”) is one of the hottest area of investment. From my anecdotal experience, if you ask market participants to list who they think is the current leader in AI, most will say Google, then followed by perhaps Microsoft  or NVIDIA. Being labeled an “AI” company helps these stocks attract incremental investors. However, it surprises me how few market participants recognize Amazon’s leadership in AI.

In my view, though impossible to quantify exactly, Amazon’s AI investments and capabilities should sustain and increase its competitive advantage over time, leading me to believe that the stock has a much longer runway than what investors are giving it credit for. If I am correct, this also means bad news for Amazon competitors – this is particularly true in the retail space where competitive have invested little in AI technology by comparison.

Unlike tech peers, Amazon does not tout its AI capabilities to investors, which is likely the main reason why Amazon is not as closely associated with AI.

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When people think of Amazon, they think of retail disruption, logistics, and AWS. Few recognize what a giant Amazon is in AI for the simple reason that they do not talk much about it to investors. First one all, in its typical highly-efficient style, Amazon opened up their Q2 call without prepared remarks, so unlike Google, Microsoft and NVIDIA, there is no opportunity to brag about their AI capabilities.

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According to Paysa, who analyzed “millions of data points”, Amazon is far and away the biggest spender on AI talent. Amazon is spending at almost double what Google is spending, who came in at #2, followed by Microsoft at #3, Facebook at #4 and NVIDIA at #5. We can also see Amazon’s commitment to AI through Jeff Bezos’s letters and interviews. For example, in Jeff Bezos’s latest letter to shareholders, Bezos wrote:

“These big trends are not that hard to spot (they get talked and written about a lot), but they can be strangely hard for large organizations to embrace. We’re in the middle of an obvious one right now: machine learning and artificial intelligence… At Amazon, we’ve been engaged in the practical application of machine learning for many years now… much of what we do with machine learning happens beneath the surface.”

Amazon’s AI capabilities should increase its competitive advantage on multiple fronts. For example, Amazon said Kiva robots have cut operating expenses by about 20%, or roughly $22 million in cost savings for each fulfillment center. AI also drives Amazon’s product recommendation engine, which should lead to higher conversion rate and better customer satisfaction. Amazon is also leveraging AI to get into customers’ homes through Alexa (which is the software in home devices such as the Amazon Echo), which should increase purchase frequency. Lowering costs, increasing customer satisfaction, and increasing traffic are all essential elements of Amazon’s flywheel strategy.

Link to the rest at Seeking Alpha

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