Amazon stock rises 5% on $38 billion deal with OpenAI
Wall Street analysts are optimistic about the deal.
A day after rising 10% after announcing solid third-quarter results, Amazon (NASDAQ:AMZN) stock is on the rise again, this time fueled by a different catalyst.
Amazon shares are up another 5% since Monday. Signed contract with OpenAIA leader in generative AI and developer of ChatGPT.
Specifically, the transaction took place between: OpenAI and Amazon Web ServicesThe company’s cloud computing business.
Through a new partnership worth $38 billion over 7 years OpenAI pays to use AWS infrastructure to run its core artificial intelligence (AI) workloads. Starts immediately. Core AI workloads primarily include training models and running products like ChatGPT for millions of users. AWS’s infrastructure has the capacity to run hundreds of thousands of Nvidia GPU chips and the ability to scale to handle agent workloads.
“Scaling the first AI requires large-scale, reliable computing,” said Sam Altman, OpenAI co-founder and CEO. “Our partnership with AWS strengthens the broader computing ecosystem that will power the next generation and deliver advanced AI to everyone.”
in other words, This transaction combines AWS’ leadership in cloud computing infrastructure with OpenAI’s advancements in generative AI. Supports growing use of ChatGPT and increasing demand for computing power.
“As OpenAI continues to push the boundaries of what is possible, AWS’ best-in-class infrastructure will serve as the backbone for our AI ambitions,” said Matt Garman, CEO of AWS. “The widespread and immediate availability of optimized compute demonstrates why AWS is uniquely positioned to support OpenAI’s massive AI workloads.”
Analysts raise target price
that Investing $38 billion over seven years would increase Amazon’s annual revenue by about $5.5 billion.. In the third quarter, AWS generated $33 billion in revenue, so AWS will generate $132 billion in revenue for the full year. That’s four times $33 billion. OpenAI revenue of $5.5 billion will increase by about 4%.
Considering that AWS is a high-margin business, Operating profit margin is about 35%This would result in approximately $1.9 billion in additional annual revenue. Approximately 4% of run rate revenue.
Initially, Microsoft was the exclusive cloud provider for OpenAI. Now that AWS is also a partner Not only does it generate revenue, but it also mitigates Microsoft’s huge advantage.It is AWS’s main cloud competitor.
Wall Street analysts are optimistic about the deal. According to Fly, analysts at BofA call this “an important validation for AWS” because it is positioned to meet and support a variety of AI demands. Evercore said it offers “significant upside” for Amazon, and Wedbush raised its price target to $340 per share.
Amazon stock is currently trading at $254 per share. The stock is up about 14% over the last two business days and is up about 16% YTD. Currently The median price target is $290 per share, suggesting an upside of 14%.. It is trading at about 28 times forward earnings.
