Amazon’s cloud division, Amazon Web Services (AWS), just secured a significant $38 billion deal with OpenAI. This agreement marks a crucial win for Amazon’s cloud business, following recent challenges. AWS, once the leader in cloud computing, had seen its market share shrink as rivals like Microsoft and Google captured big AI-related contracts. AWS’s market share dropped from 34% to 29% around the time of ChatGPT’s 2022 launch. Many investors felt Amazon lagged in the AI race, having been slow to introduce its own major AI model or a consumer chatbot.
However, Amazon has significantly ramped up its efforts. The company recently increased AI development spending, opening a massive $11 billion AI data center in Indiana. There, startup Anthropic trains its AI models using Amazon’s special Trainium chips. This new deal with OpenAI, a highly sought-after customer, combined with strong financial results, suggests AWS is regaining momentum. Analyst Mamta Valechha noted, “While this deal is smaller compared to others OpenAI made, it’s a vital first step for Amazon,” highlighting OpenAI’s plan to spend trillions on computing power.
Following the announcement, Amazon’s stock climbed 5% to a new record high. This rise is notable as Amazon’s stock had remained flat for most of the year, unlike other big tech companies that surged on similar AI cloud deals. Microsoft, for instance, committed $250 billion to OpenAI, Oracle signed a $300 billion deal, and Google has a multi-billion-dollar chip agreement with Anthropic.
Amazon’s AI journey faced hurdles, including the loss of key executives. To fund expensive data centers, CEO Andy Jassy streamlined management and created an anonymous tip line. The company also announced about 14,000 corporate layoffs. Despite this, Amazon heavily invests in AI, with capital spending expected to reach around $125 billion this year, higher than Alphabet’s and similar to Microsoft’s plans. Analysts believe the OpenAI deal offers a clear path for Amazon to recover these investments. Brian Pitz of BMO Capital Markets estimates this deal could boost AWS’s order backlog by about 20%, potentially pushing it past $200 billion. An investor commented, “It seems like Amazon is finally in tune with what’s happening with these large language models now.”
