Amazon to Lead Artificial Intelligence Battle in 2017

Original Published at Profit Confidential

The Next Catalyst for AMZN Stock

Amazon.com, Inc. (NASDAQ:AMZN) is the “King of E-Commerce” and the “King of Cloud Computing” — no analyst worth their salt would contest that fact. But now, we’re seeing Amazon artificial intelligence emerge as the market leader in AI as well, much to the despair of its competitors.

Competitors like Google-parent Alphabet Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) are working hard on their own AI software. In fact, their technology may even be superior to Amazon’s. But they can’t seem to beat Amazon to market.

Why is that? How is Amazon stock able to outpace rivals that have comparable engineering talent and resources?

The answer is simple: Amazon does business, while Google and Microsoft are doing science.

Amazon artificial intelligence, for example, was developed as a product and marketed to the public. It didn’t try to dazzle consumers with the underlying technology.

Google, on the other hand, hosted a competition between its AI and the world champion of “Go” (an ancient strategy game that makes chess look like checkers). The world champion lost four of five games to Google’s AI, which impressed a lot of people in Silicon Valley.

But that’s because a lot of people in Silicon Valley are interested in technology. Many of them studied computer science or engineering. They work in tech, have friends who work in tech, and read tech news every day.

Of course, those people would be impressed by Google’s AI, because it is an incredible feat of science! No one is denying that. But cool science doesn’t equal good business.

Business means selling something, be it a product or service. Amazon excels at business; it is the driving force of every decision made in Amazon’s Seattle-based headquarters. Google and Microsoft are less product-driven.

They are certainly working on AI-related products, but it seems a lower priority than perfecting the technology. Over the long haul, I’m certain they will secure the number two and three positions in the industry, but there’s almost no question that AMZN stock will clinch the top spot.

Also Read: Amazon.com: Should You Buy or Invest in Amazon Stock in 2017?

Artificial Intelligence in 2017: Amazon AI Ahead of Microsoft & Google

Artificial intelligence has come a long way in recent decades. Government labs, academic research departments, and rich think tanks are no longer the launchpads of AI.

That mantle was picked up by the top tech companies of the day.

Amazon is chief among them, and its AI is named “Alexa.”

If your mind jumped straight to visions of The Terminator or I, Robot, then please settle down. Amazon isn’t building a real version of “Skynet” and the machines won’t be taking over anytime soon. Those are just movies.

Real-life artificial intelligence is different in many ways. For one thing, there are competing AIs being built by various companies. None of them are hooked up to missile systems, and despite what science fiction has to say about it, we have no idea if computers will ever “wake up.”

But I digress.

Alexa is a computer algorithm that can comb through data, recognize patterns, and update its own programming. While this sounds trivial, it is actually a big deal. It means that Alexa can learn new things and incorporate that new information into its behavior.

Software developers built it to mimic our human brains. Think about it: what are we really doing when we see, feel, smell, taste, and listen? We are absorbing data about the world around us.

Alone, this data is meaningless, but when processed by our brains they become thoughts, perceptions, and memories. Amazon AI Alexa is doing this for a bunch of products, beginning with the “Echo.”

You may have heard of the Amazon Echo before — it was the best-selling gadget on Amazon.com during the holiday season. Millions of these devices have been shipped already, bringing in tons of revenue for AMZN stock.

On the surface, the Echo is marketed as a voice-controlled speaker. But in reality, it is the first successful AI gadget sold to consumers. This device sits in your home, awaiting your commands.

It’s so easy to use! All you have to do is speak — “Alexa, read the news,” “Alexa, order more diapers,” “Alexa, turn on the television” — and it will do what you say.

Unlike past voice recognition software, Alexa is incredible at understanding conversational English. It makes very few mistakes, can hear you even when music is playing, and can be used to order things on Amazon.

In other words, the Echo is like a personal assistant you can switch on or off. It is the natural successor to the smartphone, which is why we believe it can push Amazon stock to new heights.

AI Could Drive Amazon Stock Past $1,000 Per Share

I could wade into further depth about how the Echo is built on Amazon artificial intelligence, but that won’t help us pin a forecast on the AMZN stock price. We’ll sideline the algorithms and automata to focus on the big question: why is this good for Amazon stock?

To put it simply, the Echo could be as groundbreaking as the “iPhone.” In the same way that smartphones revolutionized our interaction with computers by making them mobile, an AI voice-controlled speaker takes it a step further.

No screens, no typing; just spoken words to an “assistant.” That’s what Amazon is offering

And customers are loving it. Sales more than doubled from 2015 to 2016, up from 2.4 million to 5.2 million. (Source: “It’s been a good year for the Amazon Echo,” Business Insider, December 28, 2016.) It’s amazing when you think each device costs $180.00.

That’s an easy $1.37 billion from two early years of sales. We can’t corroborate any of these numbers, of course, because Amazon doesn’t share sales data. But a little arithmetic shows that Amazon may have stumbled on to a massive opportunity that no one expected.

Not only does this mean that Amazon could win the artificial intelligence wars, but also that AMZN stock could explode through the roof. My guess is that we could see Amazon stock break above $1,000 in the coming months, and later carry the company’s valuation to $1.0 trillion.

No other tech company can touch Amazon in the artificial intelligence space.

What Makes Amazon Artificial Intelligence Stand Out

Although most big tech companies are angling for a lead in the artificial intelligence race, Amazon.com, Inc. is likely to emerge the victor. Why? Because the Amazon artificial intelligence interface is built for customers, not engineers.

This is a common flaw in Silicon Valley. Really smart software engineers like to show off for the benefit of their peers. They want sophisticated code up front, where all their friends can see it. How else will those friends realize that they’ve been ignoring genius?

In fact, there’s a TV show which addresses this issue perfectly. It’s literally called Silicon Valley.

The show follows five young men that form a tech startup in the Bay Area. In one episode, they design a brilliant app with really impressive software. A small beta test of friends gives them positive feedback, but a fully-loaded focus group says the exact opposite.

The reviewers trash everything about the app, from the way it’s laid out to its logo. The founders don’t understand. How could regular people hate the app, but their friends love it?

Simple: all their friends are engineers. They see the brilliance of the code and are impressed. But regular consumers don’t care about “elegant code!” They want the app to be intuitive, useful, and fast. This is the crucial difference for that fictional company (“Pied Piper”).

While Google and Microsoft aren’t as product-blind as the fictional company, they aren’t quite on Amazon’s level. Amazon AI services are built with an eye to the consumer, which is why the AMZN stock price is on the cusp of an AI boom.

Conclusion

For the sake of clarity, I think it’s important to restate that Google and Microsoft are phenomenal companies. Both of them will go on to do important work in AI.

For instance, Google can make a lot of money applying AI to healthcare, and Microsoft to business-focused products. But when it comes to an iPhone-level AI success story, Amazon stock is the only investment I’m looking at.

AMZN stock can deliver triple-digit gains as it explores this upside.

Some investors might be a little skeptical of these claims because Amazon’s market cap already stretches into the hundreds of billions. However, they should understand that Amazon artificial intelligence has unprecedented potential.

Amazon AI Alexa is like a massive earthquake, meaning it has the power to fundamentally change the landscape of technology. Whole industries will come crashing down. Fortunes will be made.

Rather than asking “if” this is going to happen, investors should be asking “when” it’s going to happen. The answer is “right now,” so take a second look at Amazon stock.

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