Amazon: Profiting from AI investments will take time

by The Insights

The conundrum facing Amazon boss Andy Jassy is how to ensure the e-commerce giant maintains its “always first day” philosophy of experimentation while cutting costs, by shutting down lines of business and making the profits investors expect.

Breaking with the tradition of his predecessor Jeff Bezos, Jassy opted to join the company’s earnings call again in an attempt to explain himself. The answer, as is the case across the tech industry this year, is artificial intelligence.

There was little time to talk about health care plans or the Kuiper satellite project. Jassy focused on how AI can improve enterprise customer services in Amazon’s AWS cloud computing unit, a long-term source of high-margin profits.

But the first quarter results illustrate how AI has yet to produce many rewards for the companies investing the most in its future. As Jassy has noted in the past, creating large language models can take billions of dollars. Revenues, for now, are untraceable. AWS sales growth is on a downward trajectory. At 16% year-over-year, it is growing more slowly than rivals Microsoft and Alphabet, although it retains its leading market share. The operating margin fell to its lowest level in five years. Growth is expected to decline further in the current quarter – a forecast that wiped out after-hours gains in the stock price.

Amazon may have focused more on how machine learning can improve its growing advertising business. The success of the advertisements shows that the company is right to shut down other unsuccessful businesses. The liquidation of the Halo division, which sells health trackers, makes sense in a saturated market.

Bolder changes could be considered. Amazon says it wants to transform customer experiences when entering an industry. But six years after he agreed to buy Whole Foods, it’s hard to say that life has changed for many grocery shoppers. If Jassy is in the mood for some cuts, why not completely reassess physical stores.

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