Amazon's $38 Billion Deal with OpenAI

Turning Point in Amazon's Cloud Strategy

Amazon has taken a significant step in the cloud business with its $38 billion cloud agreement with OpenAI, despite recent challenges. Recently, Amazon has had to deal with issues such as competitors gaining market share and outages in large portions of the internet, and with this agreement, it aims to reaffirm its power in the cloud market.

In recent years, Amazon has maintained its leadership in the sector with Amazon Web Services (AWS), but it lost its advantage as Microsoft and Alphabet secured large contracts with artificial intelligence-focused cloud services. According to data from Synergy Research Group, Amazon's share in the cloud market had dropped to 29% by September. This figure was around 34% before the launch of ChatGPT in 2022, raising concerns about falling behind competitors.

Amazon had been criticized by many investors for lagging behind in the artificial intelligence race. However, the company, which has recently accelerated investments in artificial intelligence, opened an $11 billion artificial intelligence data center called Project Rainier in Indiana last month. In this center, models from the startup Anthropic are being trained using Amazon's own Trainium chips.

This latest agreement signifies a strong partnership with OpenAI. Analysts suggest that Amazon partnering with a company believed to spend over a trillion dollars annually on computing power represents an important start on this path. Mamta Valechha, an analyst from Quilter Cheviot, emphasized that although this agreement is smaller compared to OpenAI's previous contracts with other cloud providers, it is a critical step for Amazon.

Amazon's shares rose by 5% following the agreement, reaching their highest level of the year. Previously, the stock had remained relatively unchanged throughout the year, outpacing the increases seen in the cloud computing agreements of other major tech companies involving artificial intelligence ventures.

However, Amazon's efforts in artificial intelligence have been constrained by the departure of senior executives. In June, it was reported that a vice president working on generative artificial intelligence development had moved to another company. The company had begun efforts to streamline management layers to remain competitive and set up an anonymous complaint hotline to identify inefficiencies.

Finally, Amazon announced a large layoff of 14,000 employees and also increased investments in artificial intelligence. It is expected to make a total capital expenditure of $125 billion in 2023, and this figure may rise even further next year.

Analysts indicate that the agreement with OpenAI provides a reliable path for Amazon to offset its expenses. Brian Pitz, an analyst at BMO Capital Markets, predicts that this agreement could increase AWS's backlog of $200 billion at the end of September by 20%.

Investor William Lee notes that Amazon is now in the flow of developments related to large language models and expresses that this is promising for the future of artificial intelligence technology.