Amazon (AMZN -2.01%) is back. After struggling with cost overruns and slowing growth, the e-commerce and cloud computing giant has returned to its winning ways.
Amazon's retail margins are improving as it refines its massive fulfillment network. At the same time, soaring demand for artificial intelligence (AI) services is bolstering its cloud business.
Investors have taken note. Amazon's stock price is already up 65% so far in 2023.
Yet there's plenty of room for more efficiency gains in Amazon's e-commerce empire. And the AI revolution is just getting started.
Here are some more reasons why Amazon's stock is still a smart buy today.
1. Data lies at the core of AI
Recession concerns drove many companies to prioritize cost cuts and slow their expansion initiatives over the past year. But the economy is proving surprisingly resilient. Amazon says many of its customers are now shifting their focus from optimizing their cost structures to capturing new business.
Amazon Web Services (AWS), in turn, is seeing its growth rates stabilize after declining earlier in the year. AWS' revenue rose 12% year over year to $22 billion in the second quarter.
Investors can expect AWS' growth to accelerate in the quarters and years ahead. Popular generative AI applications like OpenAI's ChatGPT consume an enormous amount of computing power. These applications operate in the cloud -- and many of them are likely to be built on AWS.
Although Microsoft has captured investors' fancy thanks to its partnership with OpenAI, we shouldn't forget that AWS remains the dominant cloud platform. CEO Andy Jassy explained why this is an important distinction during Amazon's second-quarter earnings call on Aug. 3.
Remember, the core of AI is data. People want to bring generative AI models to the data, not the other way around. AWS not only has the broadest array of storage, database, analytics, and data management services for customers, it also has more customers and data stored than anybody else.
Combined with Amazon's custom-designed chips -- which help to reduce the cost of training AI models by as much as 50% -- these data advantages should make AWS the cloud partner of choice for many companies seeking to harness the awesome potential of AI.
2. Speed is another potent advantage
People sometimes overlook the value of ultra-fast delivery, as well as the convenience Amazon provides. That's a mistake, according to Jassy.
Customers care a lot about faster delivery. We have a lot of data that shows when we make faster delivery promises on a detail page, customers purchase more often, not just a little higher, meaningfully higher. It's also true that when customers know they can get their items really quickly, it changes their consideration of using us for future purchases, too.
Across 60 of its largest U.S. markets, Amazon's Prime members received over half their orders the same day or the next day in the second quarter. To further improve its already best-in-class delivery speeds, Amazon shifted its U.S. fulfillment operations from a national network to a regional approach. The change reduced the miles traveled by the company's drivers to deliver packages by a whopping 19%, slashing shipping costs in the process.
Incredibly, Amazon's same-day fulfillment facilities can go from receiving an order to getting items ready for delivery in as few as 11 minutes. Better still, Amazon hit on a highly efficient design that makes these sites less expensive to build. Based on its tremendous early success with this new fulfillment format, Amazon plans to double the number of its same-day facilities in the coming years.
Furthermore, improving the speed and cost of delivering packages is allowing Amazon to broaden its already massive selection of items for sale. Groceries and other everyday essentials are notable growth opportunities.
