Amazon's AI strategy is set to deliver a chip advantage: Morning Brief
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At the start of the new year, Amazon (AMZN) employees will be required to work from their offices five days a week, tightening a rule that allowed some work from home in a bid to revitalize company culture — and realize CEO Andy Jassy’s broader shift toward restructuring and belt-tightening.
The successor to Amazon’s long-reigning CEO, Jeff Bezos, sees it as a top priority to strengthen internal culture.
“We want to operate like the world’s largest startup,” he wrote in a memo to employees earlier this month. For years he has worked to improve on the Everything Store’s cost structure and operating margins. And on top of operations, the company faces other challenges, from upstart discount retailers to the nagging perception that it’s behind in the AI arms race.
But that last hurdle may have already been cleared.
Analysts say that Amazon’s cloud business, AWS, has invested heavily enough in catching up to the industry’s first mover, Microsoft (MSFT), that its position may even be advantageous. Amazon’s ability to deploy its own chips within its data centers — at a fraction of the cost of relying on Nvidia’s — is the key.
Amazon, some analysts contend, has a leg up on its competitors on two fronts: first, over Microsoft, which was hit with a rare downgrade earlier this week for leaning too heavily on Nvidia's (NVDA) AI infrastructure. Or as Gil Luria, managing director at D.A. Davidson, told Yahoo Finance, “Microsoft is so reliant on Nvidia that it's almost transferring wealth from its own shareholders to Nvidia shareholders.”
Jassy also seems to have an answer to recent grumblings over returns on investment as tech giants dedicate tens of billions of dollars to AI capital expenditures. Amazon expects AI to generate tens of billions of dollars for its cloud business in the years ahead.
Of course, it’s still too early to say if something like “AI chip sovereignty,” the fancy word for vertical integration, will be a key factor in monetizing AI tools or if unseating Nvidia in the battle over chips will be all that useful. Amazon is taking a more “all are welcome” marketplace approach to large language models, offering customers an array of advanced models to choose from instead of peddling a single proprietary offering.
Some on Wall Street see another short-term advantage over a different rival: Google. Pinched by the potential threat of ChatGPT disrupting a search-based business model, as well as ramped-up antitrust enforcement over search practices, Google carries near-term risks that make Amazon look more attractive.