Bank of America: Amazon's robot army is expected to release $10 billion in costs, raising the target price to $248

According to the Zhitong Finance APP, Bank of America stated in a research report that Amazon (AMZN.US) is expected to unlock over $10 billion in cost-saving potential through the large-scale deployment of robotic technology, while also driving an increase in retail profit margins. Based on this optimistic outlook, the bank raised Amazon's target price from $230 to $248 and reiterated its "Buy" rating.

The report pointed out that since acquiring Kiva Systems in 2012, Amazon has continuously invested in robotic technology, with over 750,000 robots currently assisting in processing 75% of customer orders. With the continuous advancement of artificial intelligence (AI) technology, Amazon launched its first 12th-generation automated fulfillment center (FC) by the end of 2024 and plans to release eight new robots in May 2025 that significantly enhance delivery station efficiency, marking the initial stage of robotic application. Looking ahead, Bank of America expects Amazon to achieve: 1) reduced reliance on human labor; 2) improved order accuracy; and 3) optimized warehouse efficiency, leading to significant cost savings.

Additionally, Bank of America noted that in the AI era, transparency in retail shopping will continue to increase, and companies with lower cost structures and faster delivery speeds will have a competitive advantage. Amazon stated that recent breakthroughs in AI technology have achieved a "leap forward in automation and AI-assisted employees," creating conditions for Amazon to further distance itself from competitors in the logistics field. The bank believes that robots with spatial awareness capabilities completing sorting, picking, and packaging tasks could represent a significant breakthrough in fulfillment and delivery. With the AI technology advantages of AWS, Amazon is expected to adopt these technologies earlier than its competitors.

Specifically, Bank of America stated that the 12th-generation FC (with a tenfold increase in the number of robots) could reduce peak season service costs by 25%. The new construction and renovation of the 12th-generation facilities are expected to experience several years of ramp-up (with only one facility operational in 2024). Furthermore, Amazon will deploy more robots at delivery stations and is testing autonomous drone delivery in Texas and Arizona. Assuming a 20% efficiency improvement in new FCs, a 15% efficiency improvement in upgraded delivery stations, and a 40% cost saving in some package deliveries using drones, the bank estimates that robotic technology could bring an average annual cost saving of $16 billion by 2032.

The financial model shows that Amazon's retail business operating profit margin is expected to be 5.4% in 2024, a significant improvement compared to 2022. Assuming an advertising business profit margin of 55%, third-party services at 20%, subscription services at 5%, and self-operated business at breakeven, with annual capital expenditures of $10 billion, Bank of America expects the long-term margin to improve to 11%. In an era of extremely high price transparency, robots and drones will enhance Amazon's delivery speed advantage, potentially contributing an additional 2 percentage points to long-term retail profit margins, pushing the self-operated business towards profitability