On Monday, Amazon (AMZN) stock experienced a remarkable rally, reaching record highs after the tech giant announced a significant $38 billion cloud deal with OpenAI, the creator of the popular AI model, ChatGPT. This deal represents Amazon Web Services' (AWS) first cloud contract with OpenAI, a strategic partnership that has been particularly noteworthy given OpenAI's long-standing relationship with Amazon's primary competitor, Microsoft (MSFT).
In a news release, Amazon disclosed that the multiyear partnership with OpenAI will enable the AI firm to access hundreds of thousands of Nvidia's (NVDA) top-tier computing chips. The contract spans seven years, with the majority of the capacity expected to be operational by the end of 2026, and provisions for expansion into 2027. This partnership is seen as a pivotal move for AWS, especially in light of recent concerns about its competitive position in the burgeoning market for AI-related cloud computing services.
The announcement of this substantial deal follows a robust third-quarter earnings report released on Thursday, which propelled Amazon shares nearly 10% higher during Friday's trading session. The report indicated that Amazon had achieved its best cloud growth since 2022, alleviating investor worries that AWS was lagging behind other key players in the industry, such as Microsoft and Google parent Alphabet (GOOGL).
In a significant shift, OpenAI recently completed a restructuring to operate as a public benefit corporation. This change has resulted in Microsoft acquiring a 27% stake in OpenAI, reflecting its earlier investments in the startup. Additionally, OpenAI has entered into an agreement to purchase an additional $250 billion worth of Azure cloud computing services from Microsoft. Notably, this deal also indicates that Microsoft no longer holds the right of first refusal on OpenAI's cloud computing contracts, following its earlier decision to cease being OpenAI's exclusive cloud computing provider.
Moreover, in September, OpenAI committed to spending over $300 billion on cloud computing services with Oracle, further diversifying its cloud partnerships and enhancing its infrastructure capabilities.
On the stock market today, Amazon's stock rose by 5%, reaching an impressive price of $256.29, marking yet another record high for the company. The shares broke out above a 238.85 flat base buy point on Friday, as reported by IBD MarketSurge. This bullish performance highlights the strong investor confidence surrounding Amazon's strategic moves in the cloud computing sector.
As the landscape of AI and cloud computing continues to evolve, Amazon's partnership with OpenAI and its recent financial performance positions the company favorably against its competitors. Investors and analysts alike are keenly watching how this dynamic will unfold in the coming months, particularly as concerns grow regarding the costs associated with AI 'superintelligence' and its implications for the market.
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