Artificial intelligence (AI) is more than just the new buzzword on Wall Street. Companies ranging from world-class enterprises to small and medium-sized businesses are increasingly investing in the technology for fear of falling behind their competitors.
To date, some of the most obvious beneficiaries of AI are Big Tech companies such as Microsoft, Alphabet, and Nvidia. Earlier this year, Microsoft committed to a multiyear investment in OpenAI, the developer of the wildly popular ChatGPT. Moreover, Alphabet has invested significantly in a company called Anthropic, which is notably co-founded by former OpenAI employees.
E-commerce and cloud computing leader Amazon (AMZN 2.94%) has taken a page out of Alphabet's playbook, and it's the latest company to join Anthropic's impressive roster of investors. Let's break down why Amazon is so keen to join the likes of Alphabet, Zoom, and Salesforce by acquiring an equity stake in this AI unicorn.
A breakdown of the deal
Per the terms of the deal, Amazon will invest up to $4 billion in Anthropic, giving the e-commerce leader a minority ownership stake. Anthropic has been a customer of Amazon's cloud offering, Amazon Web Services (AWS), since 2021. As part of the deal, Anthropic will use AWS as its primary cloud provider. Even better, Anthropic will also be using Amazon's chips to train its future AI models. This is a huge step in the right direction for Amazon's machine learning roadmap.
Image source: Getty Images.
How can Amazon benefit?
The cloud computing sector is dominated by Amazon, Microsoft, and Alphabet. Amazon holds nearly one-third of the global cloud infrastructure market, according to industry estimates from Synergy Research Group.
Microsoft and Alphabet are the second and third largest providers, respectively, but growth for Amazon's cloud segment has fallen behind that of its peers. Some of the slowdown can be attributed to macroeconomic factors such as inflation and fears of an economic downturn. These headwinds have forced companies to make difficult decisions, including layoffs, in an effort to reduce expenses.
Unfortunately, this only explains part of the slowdown. Competition is indeed gaining steam, and Amazon is hoping to inject some new life into AWS.
Beyond this competitive pressure, one of the more underappreciated aspects of the Anthropic deal is the use of Amazon's chips. As it stands, the intersection of AI and semiconductors belongs to Nvidia. Now, Amazon has a chance to stake its own claim in the chip market.
Does this make the stock a buy?
While it's difficult to quantify the benefits of the deal right now, the broader theme of Anthropic's generative AI models leveraging Amazon chips and AWS could unlock an entirely new opportunity for the company's cloud operation.
In the long run, cloud computing will continue to grow its share of IT budgets as businesses invest in digital transformation. While Amazon faces fierce competition in the space, the company is taking action, and this Anthropic deal could end up playing a big role in the evolution of AWS.
Buying Amazon stock today in hopes that the company will soon begin to reap material benefits from Anthropic or its AI endeavors is a bit short-sighted. However, investors can use this deal as a pillar of a longer-term investment thesis for Amazon's business or for exposure to AI.
