OpenAI could start using Amazon chips. Is it time to buy Amazon?

• Amazon is in talks with OpenAI for a $10 billion investment and a deal for OpenAI to use Amazon’s Trainium chips.

• Amazon shares trade at 31.4 times P/E despite AI chip development and ties to Anthropic and potentially OpenAI.

• The deal could reveal how Amazon’s custom Trainium chips stack up against Google’s TPUs and Nvidia’s GPUs in real-world workloads.

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Just when you thought circular deals in the AI ​​scene couldn’t gain more momentum, news emerges that e-commerce and hyperscaler Amazon (NASDAQ:AMZN) is talking to OpenAI about a potential $10 billion investment and a deal to start using Amazon chips.

Surely, you just had to think that it would be a matter of time before Amazon’s AI chip efforts produced something notable. While not many details are known about the potential deal, I find it a little strange that Amazon stock isn’t taking off on the news. I guess investors are already fed up with circular deals in the AI ​​space.

And with sentiment turning against OpenAI exposure, perhaps such an event would be seen more as a negative than a positive, as gravitational forces in the tech sector drive down valuations, especially among those who spend the most on AI. Personally, I think such a deal could be a big long-term win for Amazon, especially if its Tranium chip stacks up well against Google’s TPUs or even some of the GPUs out there. Either way, Amazon has been hard at work on its own chips, and it’s about time we see what they’re really capable of.

As OpenAI opens its doors to the use of a multitude of AI innovations on the tech scene (perhaps the name OpenAI is justified, after all!), we’ll learn a little more about the Magnificent Seven’s organic silicon innovations.

And if OpenAI orders more specific chips, perhaps we’ll better understand which custom silicon solution has the advantage as the AI ​​chip race gets a little more interesting. Of course, GPUs will continue to be in vogue as ChatGPT and leading models lead the charge in cutting-edge training. However, as more ASIC deals are announced, you have to think that attention will shift away from GPU manufacturers.

In any case, I think Amazon stock is a fantastic bet, even before the OpenAI news broke last week. If OpenAI signs a deal and starts using Amazon’s new Trainium chips, I think the bullish case for Amazon stock will be much stronger.

Right now, I don’t see too much upside from AI chips in the e-commerce giant’s valuation. Meanwhile, investors seem a little hesitant when it comes to the big AI spenders. With a new head of artificial general intelligence (AGI), Rohit Prasad, stepping in at Amazon, I think it’s about time investors start being more constructive on Amazon stock after a lackluster year of earnings.

Right now, Amazon stock has a very reasonable price-to-earnings (P/E) ratio of 31.4 times. Given its prowess in AI, the warehouse robotics opportunity, relationships with Anthropic, and perhaps soon OpenAI, I consider Amazon stock to be one of the greatest recovery trades for AI investors who want some AI GARP (growth at a reasonable price) in a climate that could be much more punishing for multiple-multiple AI plays, especially those with high spending plans.

A deal with OpenAI could put some jitters in Amazon stock, but in the long run, I think such a partnership is a big plus for Amazon as it embarks on an AI journey that could create something of an inflection point in growth. I think Trainium and Inferentia are the real deal. And, in due time, I think Amazon stock will be more appropriately rewarded, perhaps after a more cathartic correction in AI stock.

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