Unveiling Amazon's Future in 2027

Artificial Intelligence

Two years ago, AI was not a prominent topic for Amazon. However, today, it has become the center of attention. Amazon has been leveraging AI for years across its various businesses to analyze data and make informed decisions regarding planning, merchandising, and fulfillment. The emergence of generative AI in the past two years has taken it to a whole new level and is leaving a significant impact on the entire company.

Generative AI elements are now present in all of Amazon's business domains. The introduction of AI as a standalone business occurs through the Amazon Web Services (AWS) cloud computing segment, which is the largest cloud services provider globally. Generative AI enhances the functionality for AWS clients, offering them tools to create their own large language models (LLMs) and train their data at the bottom layer. The middle layer provides developers with the option to use Amazon's LLMs for data training, while the top layer offers ready-to-use options for smaller businesses. The AI business has attracted tremendous interest from customers and is already generating billions of dollars in revenue for Amazon. The company is continuously enhancing it and introducing new features. Recently, it announced the rollout of its own graphics processing units (GPUs), which are the building blocks of generative AI and are designed to compete with partner Nvidia's GPUs in terms of price.

E-commerce

While e-commerce may not be as exciting as AI these days, it remains Amazon's core business. Amazon holds a significant lead in U.S. e-commerce and is constantly upgrading to offer faster delivery and better service. The company recently opened its most advanced warehouse in Louisiana, where the new design has led to a 25% reduction in processing time. E-commerce is witnessing a growth in its percentage of retail sales, and Amazon is strengthening its position. It provides generative AI services to third-party sellers, making it easier for them to create product descriptions and videos. Additionally, it offers effective data analytics to boost sales conversions.

In three years, Amazon is expected to maintain its top spot in e-commerce and may even widen its lead over competitors. The company is constantly exploring opportunities in physical retail and has made several attempts in the past. Although physical retail currently constitutes a small part of its business, it is likely that we will see new initiatives in the next three years.

Advertising

Although advertising is not one of Amazon's largest businesses, it has been experiencing rapid growth and is worth discussing as a separate segment. In the third quarter, advertising sales increased by 19% year over year, on par with AWS sales. Amazon offers the same AI benefits to advertisers as it does to third-party sellers and AWS users, providing them with robust data to create impactful marketing campaigns. It has also started offering video ads through its ad-supported streaming efforts in Prime Video, adding an exciting dimension to the platform.

Advertising was spun off into its own segment in 2022, and in three years, it will continue to play a significant role in Amazon's sales. As an asset-light business, it is expected to contribute positively to the company's operating income.

Everything Else

Amazon is always coming up with new ideas and initiatives. It is making significant progress in Amazon Pharmacy and healthcare, and now it is even selling cars on its platform. In the next three years, there are likely to be updates and developments that investors cannot anticipate today. This is in line with Amazon's innovation spirit, making it an excellent stock to hold in the present.