Amazon And The AI War: iRobot Acquisition In Focus

Key Points

• Amazon's deal to buy iRobot gets closer to completion. 
• iRobot is a consumer brand built on AI applications. 
• The consumer angle is interesting, but the AI angle is more so. 

A war is happening in the tech world, and Amazon NASDAQ: AMZN is not sitting idly by. The company commands 30% of the data-center market shares and faces increased competition from names like Microsoft NASDAQ: MSFT, which continue to whittle away at the market.

The rise of AI has amped the outlook for cloud growth. To use the words of Oracle NASDAQ: ORCL founder Safra Catz, the cloud is getting bigger and growing faster, which creates a significant opportunity in an industry already worth $240 billion on a TTM basis. The deal to acquire Roomba maker iRobot NASDAQ: IRBT is not new; it was announced late last year but is an example of consolidation and acquisition that will likely continue as the AI war grinds on. 

At first blush, Amazon buys Roomba to enter the vacuum market. iRobot was a prime target due to its position in the market and struggles to gain traction, so it makes sense in the consumer sense. However, iRobot's $1.15 billion projected revenue in 2024 is only 0.15% of Amazon's, so the consumer argument isn't strong.

However, with AI in the picture, there is a bigger story. iRobot is an AI play that generates data by the terabyte and has been doing so for nearly a decade. Its robots can scan and learn to navigate a room, a potential stepping stone to larger applications like self-driving vehicles. Add that to Amazon’s dominant position in the cloud, where AI lives and business applications arise across sectors and industries. 

The deal for iRobot is not done. Regulators in the UK have OK’d the acquisition, but the companies are still waiting for approval in the US and EU. Reviews are progressing easily, and the outcomes should be similar to the UK’s, where it was decided that Amazon would have entered the robotic vacuum cleaner market without the acquisition. Also, there was enough competition, so any entry by Amazon would not affect the market. 

Amazon is also in talks with AMD NASDAQ: AMD to use its new chips, the MI300X. The MI300X is the fastest production-quality AI-centric super chip on the market now. It has more processing power and memory than NVIDIA’s H100 and could dominate the market once it ships. That is expected to begin late in 2023; expect NVIDIA to announce another advancement soon. 

Is There An Opportunity For Investors In iRobot? 

The numbers suggest an opportunity exists for investors who want to buy iRobot. The deal is worth roughly $61 per share, and the market is still well below that level. The market surged when the UK approved the takeover, about 20%, but the $51 closing price is still 16% below the $61 target price.

There are only 2 analysts with ratings since the deal was announced. They expect it to be approved and are Holding with a $61 price target. Institutions own about 85% and have been buying for the last year. Additionally, there is still a high 12% short interest to help support the action as the deal progresses toward completion. 

Amazon: A Buy For AI Enthusiasts 

Amazon has 43 analysts rating its stock a  Moderate Buy, and they see about 15% of upside for the stock. Their activity makes it one of Marketbeat’s Most Upgraded and Top-Rated Stocks, in addition to being 1 of the most followed stocks for the platform. Regarding the analysts, The consensus target has begun to trend higher, and the market is following. 

Amazon's share price hit bottom late in 2022 and completed a reversal in 2023. The market is moving higher and shows signs of extending the rally with a chance of hitting the $140 to $150 level by late summer. The rally may continue if the Q3 results are solid in that scenario. If not, Amazon could top out at that level and enter consolidation.