Amazon Became an E-Commerce Behemoth -- Can It Do the Same in AI?
Amazon (NASDAQ: AMZN) is undeniably an e-commerce leader. In the U.S., the company holds the biggest market share and is also among the top players worldwide, second only to China's Alibaba. And Statista data shows Amazon.com was the most visited e-commerce site globally this past December.
The company built up this strength by tackling every layer of e-commerce, from sales of a variety of items -- essentials, general merchandise, and food -- to the offering of entertainment through books and movies. Amazon also put together a top-notch fulfillment network and is investing in this nonstop to move packages more quickly and less expensively from warehouses to front doors. Finally, the company offers shoppers additional benefits through Prime and has grown this subscription program to more than 200 million customers.
It's fair to say Amazon addressed every facet of e-commerce to become a champion. Today, this market giant aims to do the same in artificial intelligence (AI). Can Amazon follow its e-commerce track record and also become a behemoth in AI?
Image source: Getty Images.
A $1.3 trillion market
AI is one of the fastest-growing markets today and promises to revolutionize industries and our daily lives. At a compound annual growth rate of 36%, the global AI market is expected to reach more than $1.3 trillion by 2030, according to a Markets and Markets report. With such potential, it's no surprise Amazon is investing big in AI now to build a leadership position down the road.
In AI, the company is focusing on each aspect of this exciting technology -- just as it did in e-commerce. Through its cloud computing business -- Amazon Web Services (AWS) -- Amazon offers cloud customers services for every layer of AI needs, from chips for training and inference to customizable large language models (LLMs) and, finally, AI applications.
Here are some examples. AWS, with leading chips from Nvidia, can help clients build their own AI models, and it's even developed custom AI training and inference chips, which offer performance along with prices that cost-conscious customers appreciate. For customers who want to harness the power of already existing LLMs, AWS offers its fully managed service, Amazon Bedrock. Finally, regarding applications, AWS recently launched Amazon Q, an AI-powered assistant that can help companies speed up tasks, problem-solve, and more.
Amazon says its revenue is growing quickly across these "three layers" of AI. It's also important to note that AWS is the global leader in cloud computing, so customers are already right there -- ready to consider the latest AI services.
AI in e-commerce
On top of this, Amazon also uses AI in its e-commerce business to help better serve its customers, streamline operations, and cut costs. For instance, AI serves you suggestions of items to buy based on your previous purchases and optimizes delivery routes for your next order. These sorts of uses not only save Amazon money right out of the gate but also should keep customers coming back.
In Amazon's recentearnings call Chief Executive Officer Andy Jassy called generative AI "an area of pervasive focus and investment across Amazon." He predicts it will bring in tens of billions of dollars in revenue over the coming years.
Last year, Amazon's capital spending totaled more than $48 billion, a decrease from the year earlier. But this year, the company expects this spending to increase as it boosts investments in generative AI and LLMs. Meanwhile, Amazon clearly has what it takes to sustain the investment as earnings and free cash flow are on the rise -- and at billion-dollar levels.
AMZN Net Income (Annual) data by YCharts.
An AI behemoth
Now let's get back to our question: Could Amazon's AI business follow in the footsteps of its e-commerce business and turn the company into an AI behemoth? Very possibly.
Amazon has the financial resources and has gotten started during the early days of AI. It's also using the same successful strategy it applied to e-commerce -- tackling the subject (in this case, AI) from every angle.
At the same time, AI is helping Amazon improve operations and eventually reduce costs. The company already has made progress in lowering its cost to serve, as it's streamlined its fulfillment network.
Today, Amazon is a giant in e-commerce. Down the road, however, it could extend this to AI -- and that's great news for the company and its investors.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
