A huge chance for expansion awaits the cloud industry leader
Every application, business, and industry might be transformed by generative AI, according to research.
Swami Sivasubramanian, Vice President of Amazon Web Services.
The environment in which we live is already starting to change as a result of artificial intelligence (AI). In the upcoming years, demand for the cutting-edge technology is anticipated to soar, with Statista projecting that the AI industry would reach $1.8 trillion by 2030.
Amazon.com (AMZN -1.49%) wants a piece of this expanding market. The e-commerce and cloud computing juggernaut is probably going to succeed for the following three reasons.
- AI is boosting the expansion of clouds
Many organizations have temporarily reduced their IT spending due to recessionary anxieties. However, the move to the cloud is a significant worldwide megatrend that is still in its infancy.
Additionally, the rising need for generative AI applications ought likely hasten short-term cloud spending. According to Mizuho analyst James Lee, a recent study of 300 large corporate IT buyers revealed that the cloud market is strengthening, with shorter sales cycles and lower discounts.
Since the new technology can only be effectively deployed in the cloud, GenAI is driving the next super cycle of cloud adoption that will drive mass market migration over the coming years, according to Lee.
In turn, Lee predicts that the AI boom will push 75% of computing workloads, up from 15% today, to the cloud during the next five years. More than any other company, Amazon is best positioned to benefit from this long-term trend as the top provider of cloud infrastructure services.
- Amazon’s e-commerce profitability should increase due to automation.
Many investors are oblivious to the advantages of generative AI for Amazon’s enormous retail business amid the hype surrounding the technology and its possibly disruptive influence on the cloud sector. Don’t commit that error.
The business, a pioneer in cutting-edge robotics, intends to capitalize on its advantages over competitors. In order to save expenses, CEO Andy Jassy is striving to streamline the company’s extensive fulfillment processes.
With its investments in automation technologies, Amazon hopes to increase the effectiveness of its distribution system and lower labor expenses, both of which could eventually result in larger profit margins.
These exciting prospects are starting to catch the attention of analysts. For example, Wells Fargo analyst Ken Gawrelski thinks Amazon’s margins might increase more quickly than most investors anticipate. He expects the company’s operating margin for its North American retail segment to rise from 1.2% in the first quarter of 2023 to approximately 4% by as early as 2025.
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Gawrelski’s #1 large-cap internet stock pick is Amazon. He projects a gain of more than 20% to $159 in the value of the company’s stock.
- AI could expand Amazon’s advertising business.
The company’s lucrative advertising sales will increase along with its retail operation. According to eMarketer, more than 50% of American shoppers already begin their online purchasing searches on Amazon’s websites. To put their goods in front of hundreds of millions of potential buyers, businesses are increasingly using the e-commerce giant’s high-performing ad platform.
The ad business at Amazon is thriving due to several trends. Due to cord-cutting and the improved analytics that connected TV (CTV) can offer, marketers are transferring their expenditure from traditional broadcast TV and cable to streaming services.
The business hopes to employ AI to give advertisers even more value. It is making significant investments in machine learning so that it can show its clients more relevant adverts. Amazon is also creating AI-powered tools to assist businesses in creating images and videos for their advertisements.
The Wall Street Journal also claims that the business intends to introduce an ad-supported tier of its well-known Prime Video streaming service. According to Bank of America analyst Justin Post, there would be a significant market for such a service.
“In our view, Amazon’s user data, existing relationships with retail advertisers, and extensive ad sales teams provide a competitive advantage for monetizing ad-streaming,” Post stated in June.
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