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Going into 2021, it seems like a really bad idea to bet against Amazon (NASDAQ:AMZN). That’s because Amazon stock is likely to see continued growth powered by multiple secular trends, such as e-commerce, cloud computing and entertainment.

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But there is one other factor that should be a nice boost for the company: artificial intelligence (AI). This is a technology that has seen major strides over the past decade, such as with deep learning, new chip innovations and sophisticated Big Data systems.

The market potential is massive. In fact, according to IDC and Gartner research, AI spending is forecast to go from $174 billion in 2020 to $271 billion by 2024.

So then, what is Amazon doing with AI? What are the key assets and initiatives? Let’s take a look.

Amazon Stock Is an AI Superpower

From the early days, Amazon stock has been positively impacted by AI. From its start, the company had the advantage of access to large amounts of data about consumers and businesses. That allowed for new features to boost sales, a huge competitive advantage making it easier for AMZN to fight the many other e-commerce startups.

Maybe the most notable of the company’s innovations with AI, however, is its recommendation engine for books sold on the website. This technology was a game-changer as it led to significant increases in conversion rates, which boosted revenues but also greatly improved the user experience.

Over the years, Amazon has continued to invest heavily in AI. Because of this, the company was the first mover in the market for virtual assistants. That certainly proved to be another big driver for growth.

The Evolution of Alexa

Amazon launched its Alexa virtual assistant in late 2014. Of course, the original Alexa system was fairly primitive and had issues. But AMZN quickly iterated on the technology. As a result, it has quickly become the leading virtual assistant. For example, according to research from eMarketer, the company’s Echo smart speaker (based on Alexa) will have an estimated 70% of the market in 2020. That significantly beats out heavyweight competitors like Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).

Again, Amazon has had the advantage of massive data sets. But the company has also been aggressive in promoting third-party development with Alexa. And, naturally AMZN has the advantage of its massive e-commerce platform for distribution.

The growth hasn’t stopped there, though. During the latest quarter, the company announced other features for Alexa. These include:

  • Improvements for more “natural” and “conversational” speech
  • The addition of Guard Plus and Care Hub to help protect against home invasions and check in on loved ones
  • More privacy controls
  • Integrations with Zoom’s (NASDAQ:ZM) group call platform
  • The launch of Amazon Halo, which “combines a suite of AI-powered health features that provide actionable insights into overall wellness” of the consumer

Moreover, another big AI driver for Amazon stock is the company’s massive Amazon Web Services (AWS) business. That segment has become mission-critical for thousands of companies that use its storage, database systems and processing for projects and applications.

On the AWS front, the company also has SageMaker — an end-to-end AI platform that helps “prepare data, and build, train, and deploy [machine learning] ML models.” Some of its customers include Capital One (NYSE:COF), Siemens (OTCMKTS:SIEGY) and T-Mobile (NASDAQ:TMUS).

Bottom Line

Amazon has continued to invest huge amounts into building its infrastructure. That will provide for long-term growth and help with its AI efforts. For the first nine months of 2020, the company’s cash capital expenditures came to a hefty $21.9 billion. But the company also has more than enough resources for this. During the past 12 months, it posted $55.3 billion in operating cash flows, up 56.4% year-over-year (YOY).

No doubt, Amazon stock is not particularly cheap. Keep in mind, the forward price-to-earnings multiple is at a steep 90 times and its market capitalization is at $1.56 trillion. But so long as the company’s growth keeps up — which seems quite likely given drivers like AI — the premium is well deserved.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence BasicsHigh-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.