Amazon deal with OpenAI shakes up AI landscape
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Illustration: Brendan Lynch/Axios
AI's biggest relationships just got more complicated — and Amazon is suddenly more firmly in the center of the drama.
Why it matters: The tech giant's new $50 billion bet on OpenAI reshuffles the AI power map, in what could amount to a win for Amazon, a loosening of power for Microsoft and potential long-term risk for Nvidia as chip competition heats up.
Driving the news: Amazon Friday said it will invest $50 billion in OpenAI as part of its $110 billion funding round, while the ChatGPT maker commits to spending $138 billion on Amazon's chips and hardware over the next eight years.
- Amazon's investment will be phased, with an initial $15 billion today followed by $35 billion in the coming months as specific conditions are met.
The big picture: The deal widens OpenAI's funding base to include more cash from Amazon, less cash than expected from Nvidia and no change to Microsoft's investment.
- Microsoft was originally OpenAI's main partner. Now, it is sidelined to a degree as OpenAI is making deals with whoever it can to fund its AI ambitions.
- Nvidia was set to commit as much as $100 billion in OpenAI in this deal. That dropped to $30 billion, and now OpenAI is using chips from a potential long-term competitor in Amazon.
Zoom in: Through the new deal, OpenAI is committing to 2 gigawatts of capacity on Amazon's custom Trainium3 and Trainium4 chips — chip power expected to go toward serving up the new services Amazon is offering.
- Anthropic's training its upcoming model on Trainium chips as well, meaning the top AI labs are both using Amazon's hardware.
- Amazon Web Services — the cloud arm of Amazon battling Microsoft's Azure — becomes the exclusive third-party distributor for OpenAI Frontier, a new platform for building teams of AI agents that can accomplish more specific work tasks, which is part of OpenAI's enterprise push.
Market impact: Microsoft shares fell 2% Friday, while Nvidia fell 4%. Amazon finished up 1%.
State of play: Amazon and Google have been seeing increased demand from the AI labs for their homegrown chips, which the cloud providers say offers better "price performance" than Nvidia — industry shorthand for bang for your buck.
- To a degree, the AI labs will "take whatever they can get," John Belton of Gabelli Funds told Axios, noting demand still far outstrips supply.
- To this point, Nvidia has publicly downplayed competitive threats, arguing its software ecosystem and performance lead keep it ahead of rivals.
But for OpenAI, sourcing chips from Amazon offers the chance to be more competitive on price longer term.
- For the AI labs, the cost of your chip stack could can define your competitive edge.
What we're watching: Even though OpenAI is private (for now) investors are clamoring for signs that AI labs care about business fundamentals like cash in vs cash out — and this could be an example of the company prioritizing that.
- Lately, the company's been viewed as a "lurking risk" for investors, Belton said.
- Stocks with ties to OpenAI have seen more downside pressure year-to-date than companies with ties to Anthropic due to concerns about OpenAI's ability to fulfill its revenue obligations.
What they're saying: It may not be a bad thing for a company like Microsoft to limit its ties to the company, given it's unclear how long OpenAI can be a quality customer, Belton added.
- "Microsoft's not going to let OpenAI become 70% of their cloud business. That's just not good business practice," he said.
The bottom line: The monogamous era of the AI race is over.
- By anchoring this record-breaking funding round with Amazon rather than Microsoft or Nvidia, OpenAI is signaling it's no longer a one-cloud company, and Amazon is proving it can lure the industry's biggest stars into using its chips.
