Just when you thought the circular dealmaking across the AI scene couldn’t pick up any more traction, news breaks that e-commerce and hyperscaler Amazon (NASDAQ:AMZN | AMZN Price Prediction) is chatting with OpenAI about a potential $10 billion investment and a deal to start using Amazon chips.
Undoubtedly, you just had to think that it would just be a matter of time before Amazon’s AI chip efforts would produce something notable. While there aren’t a ton of details known about the potential deal, I do find it a bit strange that shares of Amazon aren’t taking off on the news. I guess investors have had enough of the circular dealmaking in AI.
The Amazon-OpenAI news isn’t causing a surge, at least not yet.
And with sentiment turning against OpenAI exposure, perhaps such an event would be viewed as more of a negative than a positive as gravitational forces in the tech sector pull valuations lower, especially among the heavier spenders in AI. Personally, I think such a deal could be a massive long-term win for Amazon, especially if its Tranium chip stacks up well against Google’s TPUs or even some of the GPUs out there. Either way, Amazon has been hard at work on its own chips, and it’s about time we see what they’re really capable of.
As OpenAI opens its doors to using a multitude of AI innovations across the tech scene (maybe the OpenAI name is warranted, after all!), we’ll learn a bit more about the organic silicon innovations of the Magnificent Seven.
And if OpenAI orders more of a specific chip, perhaps we’ll gain a better understanding of which custom silicon solution has the edge as the AI chip race gets a bit more interesting. Of course, GPUs will still be hot as ChatGPT and leading models lead the charge in frontier training. As more ASIC deals are announced, though, one has to think that more focus will shift away from the GPU makers.
In any case, I do think Amazon stock is a fantastic bet, even before the OpenAI news broke this past week. If OpenAI inks a deal and starts using Amazon’s new Trainium chips, I think the bull case for shares of Amazon is that much stronger.
Amazon stock isn’t priced with much AI in mind, in my view
At this juncture, I don’t see all too much AI chip upside baked into the valuation of the e-commerce juggernaut. In the meantime, investors seem a tad hesitant when it comes to the big AI spenders. With a new head of artificial general intelligence (AGI), Rohit Prasad, stepping in at Amazon, I think it’s about time that investors start getting more constructive with Amazon stock after a lackluster year of gains.
Right now, Amazon stock goes for a very reasonable 31.4 times trailing price-to-earnings (P/E). Given its AI prowess, the warehouse robotics opportunity, relationships with Anthropic and perhaps soon OpenAI, I find Amazon stock to be one of the more magnificent catch-up trades for AI investors who want some AI GARP (growth at a reasonable price) in a climate that could be far more punishing to the high-multiple AI plays, especially those that have lofty spending plans.
The bottom line
An OpenAI deal might bring some of the jitters to Amazon stock, but in the long run, I think such a partnership is a massive plus for Amazon as it embarks on an AI journey that could bring forth a growth inflection point of sorts. I think Trainium and Inferentia are the real deal. And, in due time, I do think Amazon stock will be rewarded more appropriately, perhaps after a more cathartic correction in AI stocks.
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