Amazon (AMZN +2.05%) is used to being at the center of the conversation when it comes to new technology. The company has been a pioneer in everything from e-commerce to e-books to cloud computing. However, the tech giant has been somewhat left out of market discussions around artificial intelligence (AI) thus far.
Instead, most of the market's focus has been on its big tech peers like Microsoft (MSFT 0.60%), whose partner OpenAI kicked off the surge in interest in generative with its launch of ChatGPT, and Alphabet (GOOG 0.21%) (GOOGL 0.41%), which has launched its own competitor to ChatGPT, Bard, and is making other moves in AI. Even Meta Platforms seems to be further along with its own large language model, LLaMa, than Amazon.
But that doesn't mean Amazon hasn't been advancing its own AI-related efforts. And this month, Amazon made an attention-grabbing announcement that might put it back into the center of the AI discussion.
Amazon leaned on AI heavily in its fall device update last week when it rolled out new Alexa features, using AI to improve functionality and communication. This week, it announced a $1.25 billion immediate investment (with a commitment for up to $4 billion) in Anthropic, an AI start-up that makes its own AI chatbot, Claude.
Image source: Getty Images.
The big news
In a partnership similar to Microsoft's arrangement with OpenAI, Amazon announced it was forming a "strategic collaboration" with Anthropic, a company founded by former members of OpenAI. The start-up will use Amazon Web Services as its primary cloud provider and Amazon's Trainium and Inferentia chips to build its future large language models, giving Amazon a leg up in the semiconductor business, where it's trying to stake a claim.
Anthropic will also make a long-term commitment to offering AWS customers access to future generations of its large language models through Amazon Bedrock, its cloud service dedicated to large language models. Amazon's engineers will also be able to use Anthropic's generative AI in their own work, building new Amazon applications.
In exchange, Amazon will invest $1.25 billion in Anthropic, with the option of increasing that to $4 billion, getting it a minority stake in the company. While it's unclear how much Anthropic is valued at now based on the arrangement, it appears to be significantly higher than the $5 billion it was valued at in early May prior to a $450 million funding round, which included tech heavyweights like Google, Salesforce, and Zoom Video Communications.
The tie-up is similar to Amazon's deal with Rivian when the tech giant initially invested $700 million in the EV maker in 2019 and the following year agreed to purchase 100,000 delivery vans from the company, giving Rivian a major source of demand and Amazon's stamp of approval for its vehicles. Amazon now owns close to 20% of Rivian.
NASDAQ: AMZN
Key Data Points
Why it won't help AI investors
It's now becoming clear who the early winners in the AI boom are, and with the exception of Nvidia, they aren't the big tech companies that have been realigning themselves around AI.
Instead, they are the AI start-ups like OpenAI, Anthropic, and Mistral AI, which raised a whopping $113 million in its seed round, valuing it at $260 million just weeks after its founding, without a product or barely any employees.
Big tech companies like Microsoft, Amazon, and others have billions of dollars to spend on AI tech and invest in the area, and they seem more than willing to continue to do so, which will pump up their valuations even more.
Unfortunately, ordinary investors have no easy way to invest in these privately held start-ups, and the more they raise on the private markets, the longer it will take to go public.
Amazon's investment in Anthropic is another endorsement of the transformative potential of generative AI. However, the deal is unlikely to move the needle for Amazon anytime soon, meaning the Anthropic partnership shouldn't drive your investment decision in Amazon.
For now, most of the best opportunities in AI seem to be off-limits to retail investors.
