The artificial intelligence boom is expanding beyond the semiconductor industry; Amazon and Datadog are well-positioned to be long-term winners.
The artificial intelligence boom is expanding beyond the semiconductor industry; Amazon and Datadog are well-positioned to be long-term winners.
The artificial intelligence boom began with the launch of ChatGPT in November 2022. The viral application brought generative AI into the mainstream, setting in motion a sequence of events that has led to one of the most aggressive investment cycles in history.
To date, the AI trade has largely focused on semiconductor companies and infrastructure providers, but Morgan Stanley analysts think we've reached an inflection point where the AI trade will broaden to software companies and AI adopters, meaning businesses that use the technology to reduce costs.
Here are two stocks Morgan Stanley analysts believe are well-positioned to benefit as the AI trade evolves.
Amazon: Using AI and robotics to makes its retail operations more efficient
The next wave of the artificial intelligence boom "will likely reward companies that use the technology to improve decisions, lower costs, and strengthen margins -- not just those building AI infrastructure," according to Ellen Zenter, strategist at Morgan Stanley Wealth Management.
Amazon (AMZN -1.87%) is an excellent example. The company is leveraging expertise in artificial intelligence and robotics to make its retail business more efficient. Amazon has developed dozens of generative AI applications that optimize inventory management, last-mile delivery, and warehouse operations. The company has also developed AI models that make its robots faster and more productive.
While costly, investments in those areas have already moved the needle. Amazon's trailing-12-month operating margin expanded more than 3 percentage points in the last two years, reaching 12.1% in the most recent quarter. Operating income increased at 21% annually over the same period. But the company still has room to reduce costs.
Morgan Stanley analysts led by Brian Nowak view Amazon as the most underappreciated beneficiary of generative AI across their coverage universe, and they expect the company's operating margin to hit 17% by 2028 as retail operations become increasingly efficient.
"We're expanding our deployment of robotics and automation, which have been integral to our operations for decades," CFO Brian Olsavsky told analysts. He also said the company will more than double its fleet of robotic arms this year. "We see meaningful opportunities to further enhance productivity across our global fulfillment network."
Averytin News Financial update.