Amazon was once considered to be lagging behind in the AI race compared to Microsoft and Google due to its lack of a prominent generative AI model. However, the company has partnered with the start-up ‘Anthropic’ to catch up to its competitors. New research has shown a shift in enterprises’ preference towards open-source models over closed-source models, potentially leveling the playing field for Amazon in the AI race. The improving competitiveness of open-source models undermines the perceived edge that Microsoft and Google had with their proprietary models, creating an opportunity for Amazon to defend its dominant market share.
While Amazon has been losing market share to Microsoft and Google, there are opportunities for the company to fight back. Enterprises are increasingly using multiple AI models and optimizing for optionality, creating a chance for Amazon to offer superior AI models or tools for customizing open-source models. Amazon’s extensive customer base and repository of enterprise data give it an advantage in the AI race. The company is making efforts to make it easier for enterprises to use their custom AI models on AWS, reducing the need for customers to migrate to other cloud platforms.
Amazon’s recent investments in AI start-ups and the introduction of ‘Custom Model Import’ feature on AWS show the company’s commitment to staying competitive in the AI space. Additionally, the company’s focus on offering better quality services for custom model development could help it sustain and grow its dominant cloud market share.
Despite the challenges, Amazon’s financial performance and valuation paint a positive picture for the company’s future growth potential. With strong revenue growth in the AWS segment and expanding profit margins, Amazon is well-positioned to capitalize on the AI revolution. The stock’s valuation, though higher than its competitors, is justified by its expected EPS growth rate. Overall, Amazon remains a ‘buy’ at its current valuation, with opportunities to defend its market share in the cloud space and deploy generative AI in its e-commerce business.
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