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| By Jon Markman |
It's been a miserable two years for Amazon.com (AMZN) shareholders, but AI is about to change everything.
In a letter to shareholders last week, CEO Andy Jassy set out a plan to infuse Amazon.com with AI. It’s also a strategy that would return the online giant to its core business model.
And that means investors should buy Amazon.com now.
Jeff Bezos founded Amazon.com in 1994 in suburban Seattle. He understood then that the internet was the foundation for the next generation of commerce. So, he carefully built a scalable online store.
To accommodate future growth, in 2002, he began investing heavily in computer processing, storage and software services. That support business became Amazon Web Services.
Three decades later, AWS is the biggest cloud services company in the world. It is the digital home to most of the largest corporations in the world. More than 90% of the Fortune 100 use its AWS Partner solutions, according to a 2020 whitepaper.
The annualized revenue run rate at AWS is a staggering $85 billion, and it is growing at 29% annually. Bezos started AWS to shore up Amazon.com, but the business became foundational to the digital transformation of the enterprise world.
Now those firms are being transformed again, this time by AI. And just as software famously ate the world when physical items became digital …
AI Is Now Devouring Software
AI is the science of specialized computers capable of intelligently generating software code. This software may take the form of advances in material and biological sciences, or it might be the next generation of ChatGPT, a cool chatbot that has taken the world by storm. The bottom line: AI is way bigger than getting 10,000 songs onto an iPod.
However, to get there, AI must be democratized. Crunching through large language models is currently extremely expensive. Sam Altman, co-founder of OpenAI, tweeted in December that the data costs alone for ChatGPT are eye-watering.
This is a big opportunity for Jassy. And he needs a win, badly.
Although Jassy played an integral role in the development of AWS, he has stumbled so far as chief at Amazon.com. He oversaw the disastrous doubling of its fulfillment center footprint. And the number of employees in 2022 soared to 1,541,000, up from 798,000 in 2019. Although these strategies seemed palatable during the pandemic, today they are simply irresponsible.
In his annual letter to shareholders last week, Jassy noted that AI will play a big role in the optimization of Amazon.com.
Welcomed News for AMZN
It’s also a page out of Bezos' playbook: Build foundational services for Amazon.com, then sell excess capacity to other enterprises.
Reinventing Amazon.com will begin with large language models, and generative AI projects at AWS.
Amazon Bedrock is a new service that provides LLMs for text and images from partners AI21 Labs, Anthropic and Stability AI. Titan Foundation consists of two LLMs developed in-house at AWS. And CodeWhisperer is an AI-assisted tool to help developers get started. Together, these pieces represent an aggressive push into the AI narrative.
As a credible AI player, Amazon.com has been mostly ignored by investors. Despite the considerable cloud computing market share of AWS, Microsoft (MSFT) and even Alphabet (GOOGL) have garnered more AI accolades for their links to OpenAI and DeepMind, respectively.
Jassy needs to insert Amazon.com into the story. This process should begin ahead of April 27, when the firm will release its Q1 financial results. The letter to shareholders, and several stories leaked in the financial press about cost-cutting and what the firm will do to invest in AI is a strong hint that big changes are coming.
At the time of writing, shares are $102.51. Amazon.com shares trade at 40.9x forward earnings and 2x sales. More importantly, the stock is building a big rounding base pattern, with the 50-day moving average at $98.30 acting as near-term support.
Click here to see full-sized image.
Traders can set a near-term target at $114, and a secondary marker at $133.70, the gap out of the September collapse. A rally to the latter level would represent a gain of 30.4% from current levels.
As always, conduct your own due diligence before entering a trade.
Best wishes,
Jon D. Markman
P.S. According to my friend, colleague and Weiss Ratings Startup Investing Specialist Chris Graebe, the recent banking panic is already driving promising companies to equity crowdfunding, an alternative funding that allows regular, nonaccredited investors to invest in early, pre-IPO companies. This presents a huge opportunity for Weiss Members. Click here to learn more about how to claim an early stake in a well-vetted startup.
