Amazon’s 1Q23 Reports on the Consumer & AI

May 1, 2023 | Corporate Insights, No Bull Economics

Customers seek to stretch their budgets further & are focused on value. This is not the case for enterprises looking to implement AI, and Amazon is ready to capitalize on helping implement this burgeoning tech which is poised to transform customer service. 

Consumer

  • Cautious consumer spending reflects an uncertain economic environment & ongoing inflationary pressure.
  • Moderating spend on discretionary categories is prompting shifts to lower-priced items with healthy demand in everyday essentials (such as consumables & beauty).

Fulfillment

  • Covid dynamics prompted Amazon to double the size of its fulfillment center footprint, essentially building a transportation network the size of UPS in a couple of years. An ongoing shift from a national fulfillment network to a regional one is designed to drive productivity.
  • Labor availability has stabilized & inventory supply chain challenges have moderated.
  • All the same, there is a lot of profit recovery left when considering that Amazon’s North American operating margin was 1.2% during the quarter vs. a 4% to 6% pre-covid range.

AI & AWS

  • While the large language models & generative AI capabilities have been around for a while, they did not become compelling before 6 – 9 months ago. This tech has improved so dramatically that it is now poised to transform virtually every customer experience that exists while creating many that were not previously possible.
  • AWS believes its scale-based cloud infrastructure offering is well-positioned to provide outsourcing for large language models & generative AI (machine learning) which is extremely expensive to implement.
  • In any case, as 90%+ of global IT spend is still on-premise, AWS believes there is also a great opportunity to provide cloud-based outsourcing for all other types of IT services.  
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