AI firm OpenAI (PC:OPAIQ) recently signed a massive deal with tech giant Amazon (AMZN), where it agreed to spend around $38 billion over the next seven years on cloud services through Amazon Web Services (AWS). As a result of the partnership, OpenAI will gain access to a massive amount of computing power, including advanced chips and data center space provided by AWS. This is a major change in how OpenAI handles its infrastructure needs and shows that AWS is ready to support the growing demands of artificial intelligence models like ChatGPT.
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In fact, this deal is especially important for Amazon, which has been lagging behind in the AI cloud space compared to its big rivals, such as Microsoft (MSFT) and Google (GOOGL). By partnering with OpenAI, AWS gets a chance to prove that it can handle the heavy computing required to train and run powerful language models.
However, it’s worth noting that the $38 billion figure doesn’t mean immediate profit. As previously mentioned, the spending will be spread out over seven years, and Amazon will need to invest significantly up front in order to expand its infrastructure. Nevertheless, while this may lower profits in the short term, it positions AWS well for future growth. At the same time, the deal shows that OpenAI isn’t relying on just one cloud provider, which could increase competition among cloud companies going forward.
Is Amazon a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Strong Buy consensus rating on AMZN stock based on 42 Buys assigned in the past three months, as indicated by the graphic below. Furthermore, the average AMZN price target of $295.35 per share implies 17% upside potential.
