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Amazon (AMZN) initially saw decent gains today before the move faded, keeping the stock on a modest downward trajectory since reaching record highs last month. The jump to kickstart today's trading session was supported by an FT report surrounding the e-commerce and cloud giant's plans to re-introduce its Alexa assistant as an AI product, following in the footsteps of its big tech counterparts, including Google (GOOG) and Apple (AAPL).

AMZN has hinted at its desire to rearchitect Alexa's "brain" with a new set of foundation models as it increasingly adds more AI to all of its devices. For instance, its new Kindle Scribe, which was announced late last year, possesses a built-in AI-powered notebook, enabling rapid summarizing of notes. This device, combined with AMZN's Kindle Paperwhite, which now touts a color screen, as well as the new pocket-sized Kindle, saw outsized sales within the first few weeks of launch, exceeding management's expectations.

While it is unclear how much AI has influenced customers' buying decisions, it could be a deciding factor when weighing competing products. AMZN is slightly behind surrounding retail consumer-focused AI. While AWS is leveraging advanced AI capabilities, AMZN's consumer electronics continue to come with an increasingly outdated Alexa voice assistant when stacked against its peers. For instance, Google's Gemini assistant has featured AI for over a year, while Apple's Siri received a major overhaul a few months ago and is now integrated with ChatGPT (MSFT).

• AMZN falling behind is a consequence of struggling to eliminate AI hallucinations, where the model makes up an answer instead of disclosing that it cannot find information on the topic. Hallucinations remain a nagging problem across all large language models (LLMs). Numerous companies, from those in AI to other unrelated verticals, have discussed the risk of hallucination in their AI-powered chatbots. For instance, Meta Platforms (META) noted last year that rushing AI to market has resulted in considerable hallucination rates.
• AMZN wants Alexa to be embedded across an individual's home, turning on lights, playing music, closing blinds, etc. With Alexa trying to be more than a personal phone assistant, hallucinations can shut the door on adoption, making it critical to avoid these issues before launch, which has created some delays.
• Still, revamping Amazon Alexa is more of a matter of when than if. During AMZN's Q3 earnings call in October, CFO Brian Olsavsky commented that a Gen-AI-powered Alexa is absolutely going to happen. With around 500 mln Alexa-enabled devices across the globe, AMZN has the potential to quickly become an AI leader within the consumer tech world. The company will not want to pass up this opportunity.

AMZN has high ambitions surrounding Alexa, given that the assistant is used across homes, offices, vehicles, and within the hospitality industry. Given the sophistication of LLMs, Alexa can act as a powerful personal assistant. However, hallucinations can quickly damage an AI model's reputation, making it crucial that AMZN gets this right on the first go-around.