Amazon: Ready, Set,?A.I.

Sep. 26, 2023 10:01 AM ET Amazon.com, Inc. (AMZN)

Summary

• We remain buy-rated on Amazon.
• We think Amazon is improving its competitive position against Microsoft and Google in the race to leverage A.I. with the recent announcement of a $4B investment in Anthropic.
• We expect the investment to also stretch visibility for AWS as Anthropic will use AWS as its primary cloud provider and give AWS customers early access to unique features.
• Additionally, we’re seeing Prime Video move closer to profitability with the introduction of ad-tier subscriptions in 2024, following the footsteps of Netflix and Disney.
• We see an increasingly favorable risk-reward profile for AMZN stock into 2024.

This article discusses Amazon’s recent moves in the field of artificial intelligence (AI) and its potential impact on the company’s competitive position and stock performance. Here are the key points:

1. Amazon’s Competitive Position in AI: The article highlights that Amazon is taking steps to enhance its competitive advantage in AI, particularly against Microsoft and Google. Amazon recently announced a strategic investment of up to $4 billion in Anthropic, an AI startup. This investment is seen as part of Amazon’s broader strategy to position itself as a comprehensive AI provider.
2. Alexa’s Advancements: Amazon has also introduced new software and hardware with “gen A.I.” for its virtual assistant, Alexa. These enhancements aim to make Alexa more human-like and improve its natural interactions.
3. Amazon’s Outperformance: The article suggests that Amazon is now surpassing Microsoft and Alphabet in the AI sector, marking a shift from its previous position of being behind these tech giants.
4. Investment in Anthropic: Amazon’s investment in Anthropic not only involves funding but also includes using AWS (Amazon Web Services) as its primary cloud provider. This partnership is expected to enhance AWS’s visibility in the cloud computing market and potentially impact Amazon’s chip-making plans for machine learning.
5. Amazon as a Cloud Computing Play: The article encourages investors to view Amazon as more of a cloud computing play than a consumer discretionary one. It suggests that consumer spending can be volatile, but the retail side of Amazon’s business may experience growth due to holiday season demand.
6. Ad-Tier Subscription for Prime Video: Amazon’s Prime Video is expected to introduce an ad-tier subscription in 2024, following the model of Netflix and Disney. This move aims to drive profitability in the streaming business.
7. Valuation: The article discusses Amazon’s valuation, noting that it appears fairly valued. It provides comparisons of Amazon’s valuation metrics against peer group averages.
8. Wall Street Sentiment: Wall Street analysts are overwhelmingly bullish on Amazon, with the majority of analysts giving it a buy rating. The article mentions price targets and potential upside for the stock.
9. Recommendation: The article maintains a buy rating on Amazon and suggests that the company’s competitive position in AI, as well as its potential for outperformance, makes it an attractive investment, especially with favorable entry points.

Overall, the article paints a positive outlook for Amazon, particularly in the context of its AI initiatives and cloud computing business, while also acknowledging the importance of consumer spending and the potential for profitability in its streaming services.

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