Investing

This AI Stock Is Like Buying Microsoft in 1996

Chris MacDonald

Published: June 17, 2024 10:14 am

24/7 Insights:

• Wayfair (NYSE: W) is an e-commerce retailer that’s fallen considerably from its post-pandemic peak.
• The company’s more than 80% decline is tied to macro trends, but also deteriorating fundamentals over time.
• Here’s why this online retailer could be an AI wildcard investors are likely overlooking. 

Wayfair (NYSE: W) could be the last company investors think of when they of AI stocks. In fact, this e-commerce retailer is about as simple of a business model as one can think of, at least that’s what most investors think when they first look at this company at first glance. 

What Wayfair does, for those who don’t know, is offer online selections of housewares, home goods, furniture and other related products via its e-commerce site. Like other online-first retailers, Wayfair saw incredible demand for its stock during the pandemic. Shares of W stock traded well above $300 per share for much of 2020 and 2021, before coming back down to pre-pandemic levels in short order. Today, the stock trades around $55 per share, good for a decline of well more than 80% from its peak.

However, the question many investors have is whether Wayfair is similar to so many other pandemic-era businesses with unsustainable models that were only periodic boosted by our forced house arrest by the authorities, or if this is a stock that’s built something that can last, and the market’s not appreciating it.

Here’s our angle on why Wayfair could actually be an intriguing AI play in disguise right now. 

Wayfair – An AI Stock? 

Source: George Steinmetz / Getty Images News via Getty Images

Wayfair’s online e-commerce platform has reportedly served more than 33 million customers, many of whom continue to come back as repeat customers to browse for their household necessities. With such a broad reach, and expectations of growth ahead, the company has turned dits focus to finding better ways to serve its clientele and keep them coming back for more.

Many investors are well aware online shopping platforms such as Amazon (NASDAQ: AMZN) provide tailored search preferences to customers using artificial intelligence technology. In fact, Amazon was among the pioneers in this space, with a proprietary algorithm many have tried to copy.

It appears Wayfair is looking to enter this space, building their own recommender systems to help customers find what they’re looking for as quickly and efficiently as possible. 

Wayfair recently undertook a massive collaboration with ThirdAI to create a search system that will surface the most relevant results to its customers. Unlike other behavior-based search models, Wayfair has looked to build a convolutional neural network (CNN) model to better classify logical regression models (those that assign probabilities to word sequences). This iteration of the company’s core architecture essentially allows for searches to take place much more accurately, and within a few milliseconds. Notably, Wayfair recently noted that finding from Amazon suggested that every 100 milliseconds in latency could cost an e-commerce company 1% of their sales – that doesn’t sound like a lot, but it is.

Wayfair has continued to iterate on its CNN model, adding filters that work in parallel before pooling, which allows for much faster and more sensitive (and complex) queries to be processed at scale. Some experts have suggested that this model is much more akin to how the human brain works. And while there’s plenty of room for scientific discovery on this front, it does appear that Wayfair and the ThirdAI team are making the right strides to bring next-generation AI to our fingertips.

AI Applications Matter

Source: imaginima / E+ via Getty Images

In many cases, it can be plainly seen that companies are utilizing the hype around AI to boost stock prices over the near-term. Many companies looking to integrate AI into their business models don’t really have a strong use case for doing so. I don’t think that’s the case with Wayfair.

This collaboration with ThirdAI is certainly intriguing, and could usher in a new era of AI-driven e-commerce search models moving forward. And while it does appear the Wayfair team has more work to do on this front, it will be interesting to see if these advancements will truly flow through to the company’s top- and bottom-line growth rates moving forward.

Now, excellent AI search models can only go so far. Customers have to actively seek out Wayfair and its goods. Without strong demand, these models may be proven moot. 

But for those looking for a company at the cutting edge of integrating AI into the world of e-commerce, Wayfair certainly makes an intriguing case study to at least observe moving forward.