Amazon's Bold Move Towards AI

Artificial intelligence (AI) has been a hot topic for many economists and analysts, but its impact on corporate profits is not always what people expect. In a bold move, Amazon.com recently announced their plan to demolish nine office towers in Virginia and replace them with state-of-the-art data centers. This decision has raised eyebrows, but it also highlights Amazon’s commitment to AI dominance.

The decline of manufacturing jobs in America has been a topic of concern for decades. Automation and offshoring have led to a significant decrease in domestic manufacturing payrolls. However, this shift towards automation has also brought about positive changes. The average manufacturing worker today produces over $200,000 worth of output annually, compared to around $40,000 in the 1960s. This increase in productivity, driven by automation, has resulted in lower prices and better quality for consumers, as well as improved profitability for corporations.

Now, AI is set to revolutionize knowledge work. McKinsey, a global business consulting firm, conducted a study on AI’s impact and concluded that it could potentially contribute between $17.1 trillion and $26.5 trillion to the global economy. The areas that are expected to benefit the most from AI are sales and marketing, as well as software engineering.

One area where AI is already making a significant impact is customer support operations. The development of intelligent AI chatbots has revolutionized this field. These chatbots are now able to provide customer support that is indistinguishable from human interaction. McKinsey analysts predict that increased interaction with these AI chatbots will lead to greater customer self-service and more successful resolutions during the initial contact, potentially increasing productivity by 30%-45%.

AI is also transforming software engineering. Software platforms like ChatGPT are capable of generating code based on natural language prompts, eliminating the need for manual coding. This has profoundly changed the role of software engineers, allowing them to focus on defining problems and designing structures, while AI takes care of the heavy lifting. Companies like Otherside AI are now achieving much more with fewer coders.

With these developments in mind, Amazon’s decision to demolish office towers and build data centers seems like a logical step. The future of the company lies in data centers, not office spaces. As one of the largest technology companies, Amazon.com expanded rapidly during the pandemic and competed fiercely for top engineering and managerial talent. However, a reversal in this trend has begun, with layoffs and hiring freezes becoming more common. This is not necessarily a sign of decreased demand for software engineers, but rather a result of the increased productivity made possible by generative AI.

Amazon.com is in a prime position to leverage AI technology across its business. With its mammoth online retail business and the advantage of AWS cloud services, the company can deploy AI chatbots and software generative AI to drive greater efficiency and profitability. As CEO Andy Jassy has committed to cutting costs and increasing profitability, the shift towards AI is well-aligned with the company’s goals.

From an investment perspective, Amazon.com presents an attractive opportunity. Despite its impressive growth, the company’s stock price has lagged behind its big technology peers. With a forward earning multiple of 48.6x and a sales multiple of only 2.5x, Amazon.com shares appear undervalued. Investors should consider this as an opportune time to buy Amazon.com shares, capitalizing on the company’s bold move towards AI dominance.

In conclusion, AI is transforming the corporate landscape, and Amazon.com’s decision to demolish office towers and invest in data centers is a testament to the power and potential of AI technology. As the white-collar world experiences a productivity boom similar to the one seen in the decline of blue-collar jobs, companies like Amazon.com are well-positioned to benefit. Investors should take note of this bold move and consider buying Amazon.com shares as they capitalize on the future of AI.