Analysts at Bloomberg Intelligence expect the generative artificial intelligence (AI) market to grow at a compound annual rate of 42% to $1.3 trillion by 2032 as more companies get involved. E-commerce giant Amazon (AMZN -2.52%) and online search leader Alphabet (GOOGL -1.56%) are industry front-runners as they incorporate the technology into their consumer-facing platforms and cloud computing segments.
Let’s explore what these new revenue streams could mean for long-term investors.
Starting as an online bookstore before becoming a diversified e-commerce giant that earns most of its profits from cloud computing, Amazon has a long track record of reinventing itself by pivoting to new opportunities. From the looks of it, generative AI will be no exception as the company incorporates the technology into many aspects of its operations.
According to Business Insider, Amazon has launched a secretive initiative called Project Nile designed to overhaul item discovery on its e-commerce marketplace. When implemented, the new features could allow for product comparisons, personalized recommendations, and even a conversational shopping assistant designed to help customers find their perfect item. The end goal is to boost Amazon’s conversion rate — encouraging people who browse the site to make purchases.
But Amazon’s e-commerce ambitions are not limited to just e-commerce. In September, the company announced a $4 billion investment and strategic partnership with ChatGPT rival Anthropic, which specializes in creating foundational models — AI algorithms trained on a vast amount of data that can be adapted to a wide range of tasks. The deal will give Amazon a minority stake in the business, while Anthropic will use Amazon’s cloud computing platform, AWS, for its data and computational needs.
Over the long term, investors should expect AI to be a significant growth driver for Amazon, boosting the performance of both its e-commerce and cloud computing businesses.
When OpenAI’s conversational chatbot ChatGPT burst onto the scene in late 2022, some feared it could erode Alphabet’s economic moat by competing with its Google online search business. But instead of rolling over, Alphabet turned this challenge into an opportunity to leverage its vast scale to potentially dominate the industry instead.
Google handles roughly 83% of desktop searches, and this massive user base can represent a captive audience for some of its AI-based offerings.
This year the company introduced optional AI-powered search results on its Google platform. Unlike ChatGPT, these results are up-to-date and include citations, allowing Google to remain a one-stop-shop for all its users’ search needs. While Google AI search probably won’t be a game changer from a revenue perspective, it helps protect the platform’s market share and could generate user data for ad targeting and other research.
Alphabet’s AI ambitions do not end on the consumer side of the opportunity. The tech giant has also set its sights on hardware with its new enterprise-level AI chips designed to compete with the current industry leader, Nvidia. These products will help power Google’s cloud computing platform, which is used by over half of generative AI start-ups.
The magic of big tech
For long-term investors, blue-chip tech companies are a solid pick. They boast successful established businesses and the potential to leverage their skilled workforces and large research budgets to expand into new markets. Amazon and Alphabet look poised for continued success as they tackle the enterprise and consumer-facing sides of the AI opportunity.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon.com. The Motley Fool has a disclosure policy.