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Amazon Go Is Just What Amazon Needs For Its Next $600 Billion Opportunity

Ferris Bueller said it best: "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it." While the venerable character played by Matthew Broderick was talking about the life of a teenager, he just as well may have been talking about what Amazon (AMZN) is doing to slowly take over the U.S. grocery market as its next big target.

Amazon is a company that is largely dependent on growth, constantly looking for new areas to expand into. That's why, despite having a market cap of nearly $360 billion, it earned just 52 cents a share in the third-quarter. It takes nearly all of its operating cash flow, which CEO Jeff Bezos and his team believe is a better way to value the company, and reinvests it in various areas.

Earlier this month, Amazon introduced Amazon Go, a re-imagining of the grocery store experience, not due to fancier foods or a cheap breakfast buffet bar, but a better in-store experience, powered by technology. Specifically, deep learning and artificial intelligence.

Building out Amazon Go and its grocery store initiative isn't going to be cheap. There have been reports that Amazon wants to have 2,000 grocery stores but it has publicly denied that. Whatever the true number of 1,800 sq. ft Amazon Go or stores like it is, it's going to cost a considerable amount of capital, so shareholders can expect Amazon to continue being in investment mode for some years to come.

At roughly $650 billion per year, the U.S. grocery market is an enormous market for Amazon to take on and tackle, but it's one it's been doing so for some time in a multitude of ways. In the past, it used Amazon Fresh and its network of delivery trucks to make online food shopping as seamless as ordering a Christmas gift for mom, but it's taken that one step further with Amazon Go.

Benchmark analyst Daniel Kurnos wrote that on the surface, the announcement "seems like a potential game-changer, assuming the technology is feasible and relatively bug-free." If Amazon were to generate $20 billion in grocery revenue worldwide over the next 5 years, that would be a huge boost to Amazon's growing ambitions to be a one-stop shop for everything.

Thanks to camera sensors, artificial intelligence and deep learning (potentially the start of a neural network, though that hasn't been confirmed yet), Amazon is taking the mega-trend technologies of today and combining them to make an experience from yesteryear all the more pleasant and easier.

While some have cried that it's the end of jobs, Amazon Go is about making for a better customer experience and allowing humans to do larger tasks than just being a cashier or bagging groceries.

Amazon's Just Walk Out technology will let consumers pick up what they need after they've scanned in using their smartphones and Amazon Go app and walk out when they're done. The cameras and deep learning keep track of everything you've picked up in a virtual cart. After you've left, your Amazon account is charged with whatever payment method you have on there and you're emailed a receipt. There's no more waiting on the Express line behind someone who has a few too many things.

It's also going to put immense pressure on companies like Costco, Kroger, Whole Foods and others to keep pace, investing in new technologies or risk losing customers once Amazon Go is up and running (the beta store has not opened up yet).

If the other grocers follow suit, it should be good for companies that have ridden the artificial intelligence trend we've seen since the start of 2015, including chipmakers like Nvidia (NVDA) and AMD (AMD).

Soft artificial intelligence -- which is what is most likely being used -- is here to stay and it's affecting jobs, allowing humans to reduce simple tasks from their jobs since the technology can do them faster and more efficiently. Yes, it may lead to the reduction of some jobs, but it will also help create new ones that were not possible nearly 90 years ago when the first supermarket opened up.

Amazon has been ruthless in its innovation and doesn't care what area it goes after, only rather how much market share it can garner, be it in e-commerce, cloud computing, digital content, and others.

That mindset has helped serve shareholders well over the past 20 years or so and with groceries its next big target, there's no reason to think that trend will stop anytime soon.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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