How will AI Help Amazon (AMZN) Boldly Go?

I revel in imagining this wild 1970s scenario…

A Trekkie and his friend sit on a green velvet couch watching Star Trek.

In the classic episode “Charlie X”…

The see a food synthesizer — a device that can create any meal — create Thanksgiving turkey.

The following conversation might have gone a little something like this…

(Continued below…)

INTERIOR LIVING ROOM – DAY

RED SHIRT TREKKIE

Hey, chief!

Imagine if we had a food synthesizer…

I could go for some tacos with this Mountain Dew right now.

YELLOW SHIRT TREKKIE

Man, when I grow up I’ll put tacos and Mountain Dew in every home.

RED SHIRT TREKKIE

Dude, if you did that you’d be the richest man in the world.

You have a better chance of going to outer space with Captain Kirk!

YELLOW SHIRT TREKKIE

Remember what Kirk said in the episode "Mirror, Mirror".

"In every revolution, there’s one man with a vision."

END

Just look at the yellow shirt kid with a vision — on the right — forty years later.

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Because Trekkie Jeff Bezos pictured a future few others did…

He became the worlds richest man… went to space with Captain Kirk… and even got a girlfriend.

He started with books…

And built the world’s largest distribution network of fulfillment centers, sortation centers, delivery stations, receive centers…

Plus, an entire fleet of ever more efficient robots, drivers, trucks, and airplanes…

To deliver tacos and Mountain Dew to your house before you can finish binge-watching a Star Trek season.

(In some places, you’ll get it before an episode is even over.)

Today, delivering products efficiently accounts for over 50% of Amazon’s revenue —whether through their online stores, physical stores, third-party seller services, or Prime membership.

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Today, Amazon’s huge hub-and-spoke network must surely reach even the hungriest remotest lumberjack Trekkie in America?

If so…

How does Amazon continue to perform and attract investors in the future?

Two letters: AI.

A recent McKinsey report identified 63 use cases where AI will help companies like Amazon increase productivity.

In fact…

Over the next few years, AI efficiency gains are estimated to increase corporate profits to the tune of $4.4 trillion a year.

So, let’s take a peek at a recent quarterly income statement…

Before Amazon really started to ramp up their use of AI.

In this Sankey diagram you’ll see Amazon's fulfillment operating expenses cost them $20 billion in Q1 FY23.

So, for every 1% increase in fulfillment efficiency… Amazon makes another $200 million in profit… or 6% more in net profit.

Since then, Amazon has been investing heavily in AI to unlock these efficiencies…

And in Q2 FY24 net income tripled to $13.5 billion.

Tripled.

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While it’s not clear know how much of this jump is attributable to AI…

Amazon has publicly stated the company's focus on operational efficiency has played a significant role in increasing profitability.

In line with this focus, Amazon laid off 27,000 workers — the majority in retail — in 2023.

Over the coming quarters, this trend should continue.

And here’s how their moat grows wider…

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Robotics and Automation: AI-driven robots are streamlining operations in Amazons fulfillment centers, reducing the time and cost to pick, pack, and ship products.

Last-Mile Delivery Optimization: Machine learning algorithms are helping to optimize Amazons delivery routes, making it possible for drivers to reach customers faster and using less fuel—ultimately lowering logistics costs.

Predictive Inventory Management: AI is helping Amazon predict which products customers will order, ensuring that the right items are stocked at the nearest fulfillment centers, cutting down on costly shipping.

Customer Service Automation: Chatbots and AI-driven customer service systems are reducing support costs while providing faster and more accurate resolutions to customer issues.

So, where will Amazon boldly go in the coming quarters?

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Always be prospering,

SocrAItes

Publisher, Sage Research

P.S. An oldie but a goodie…