Chewy's AI Investments Are Poised to Drive Structural Cost Savings

Chewy, Inc. CHWY is increasingly leveraging artificial intelligence to improve operational efficiency, lower costs and support long-term margin expansion. As the company scales its technology capabilities, management views AI as a strategic tool that can enhance customer experiences, while simultaneously creating meaningful structural savings across the business.

Over the past several quarters, Chewy has invested in building a unified enterprise data platform and centralized AI infrastructure, laying the foundation for large-scale AI deployment. The company is embedding AI across multiple functions, including customer service, fulfillment, pharmacy operations, marketing and the broader supply-chain network. These initiatives are designed to streamline workflows, improve productivity and reduce operational complexity.

Management indicated that AI-driven efficiencies are expected to generate a benefit of low 10s of millions of dollars in fiscal 2026. Looking ahead, Chewy sees a path toward more than $50 million in annualized savings as these capabilities scale throughout the organization. The company believes that these efficiencies will structurally lower its cost-to-serve, creating a durable source of operating leverage rather than temporary cost reductions.

Beyond cost savings, Chewy is also using AI to improve search relevance, product discovery and personalization across its platform. These enhancements are expected to strengthen customer engagement and conversion rates, while supporting the company’s broader growth strategy. Management is also closely monitoring the emergence of agentic commerce, which could create demand and distribution opportunities in the future.

The growing contribution from AI is expected to play an important role in Chewy’s profitability outlook. Management noted that a larger share of margin expansion in 2026 will come from SG&A leverage and operational efficiencies, supported by AI adoption and fulfillment network optimization. Combined with strong revenue growth, recurring Autoship sales and expanding free cash flow, AI is becoming an increasingly important driver of Chewy’s long-term earnings growth story.

CHWY’s Price Performance, Valuation & Estimates

Chewy, which competes with Central Garden & Pet Company CENT and Petco Health and Wellness Company, Inc. WOOF, has fallen 16.8% in the past three months against the industry’s growth of 19.2%. Central Garden & Pet shares have declined 1.1%, while Petco has gained 14.4% in the same period.

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From a valuation standpoint, CHWY trades at a forward price-to-earnings ratio of 12.92X, below the industry’s average of 23.84X. It has a Value Score of B. CHWY is trading at a discount to Central Garden & Pet (with a forward 12-month P/E ratio of 13.20) and Petco (14.81).Zacks Investment Research

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The Zacks Consensus Estimate for CHWY’s fiscal 2026 earnings implies year-over-year growth of 27.6%, whereas the same for fiscal 2027 indicates an uptick of 23.2%. Estimates for fiscal 2026 and 2027 have been revised downward by 1 cent and upward by 1 cent, respectively, in the past 30 days.Zacks Investment Research

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CHWY currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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