Amazon custom chips get a boost from Meta, giving the cloud giant another path to win in AI
Amazon stock is finally getting the breakout we have been waiting for — and another artificial intelligence chip win on Friday may help explain why. Shares of the e-commerce and cloud giant popped nearly 3% to above $263 each, on track for their second record-high close this week. The latest catalyst: Friday morning’s announcement that Meta Platforms has agreed to use Amazon’s Graviton chips to help run the social media and AI company’s massive computing needs. The deal, which will run at least three years, makes Meta a top-five customer of Graviton, which are central processing units (CPUs) based on an architecture from Arm Holdings , our newest Club stock. The partnership is important because it shines a spotlight on Amazon Web Services’ growing position in one of the most vital races in tech: supplying the infrastructure behind AI. As hyperscalers scramble for enough computing capacity to meet their AI ambitions, Amazon is increasingly showing it can compete as both a cloud and a chip provider. That is a key part of the bullish Amazon case resonating with investors. “People are recognizing that everything that they said in the (investor) letter is really coming true,” Jim Cramer said Friday during the Investing Club’s Morning Meeting, referring to Amazon CEO Andy Jassy’s latest shareholder letter published earlier this month. “Virtually all AI thus far has been done on Nvidia chips, but a new shift has started,” Jassy said in the letter, noting how companies are looking for alternatives to Nvidia’s pioneering graphics processing units (GPUs), such as the AWS Graviton and Trainium. The CEO said that Amazon’s chips can help lower the costs of its AWS cloud customers. While Nvidia GPUs remain the preferred chips for AI training because of their sophisticated ability to process vast amounts of data, the rise of CPUs is being driven by cost efficiency and scalability of real-world AI applications. Amazon has dedicated years to building a chip portfolio that includes both Graviton CPUs and Trainium accelerators, which act like GPUs. Amazon describes CPUs like Graviton as best suited for “always-on reasoning workloads” that require constant decision-making. Trainium and GPUs, on the other hand, excel at training AI models. In his letter, Jassy said, “Our annual revenue run rate for our chips business (inclusive of Graviton, Trainium, and Nitro — our EC2 NIC ) is now over $20 billion, and growing triple-digit percentages YoY.” For Meta, the appeal is also clear. AI training and running everyday tasks are expensive, and shifting parts of those workloads onto Graviton could reduce compute costs. That matters for a company that deploys AI across billions of users via Facebook, Instagram, and its ad platform where content and recommendations must run continuously at a massive scale. Jim also remains bullish on Meta. He called the stock “a screaming buy at this point because the stock’s come down on him being efficient,” referring to Meta CEO Mark Zuckerberg. “He seems to understand when to use agents and when to use people,” Jim added, following Meta’s Thursday layoff announcement . Ultimately, the Meta-Amazon Graviton partnership favors both tech giants in one way or another, but is a particular win for AWS as it strives to capture more of the AI boom by selling the scarce chips that power it. We have a buy-equivalent 1 rating on Amazon with a $250 price target. We also have a 1 rating on Meta along with a $825 price target. Both Amazon and Meta report earnings after the closing bell this coming Wednesday. Microsoft and Alphabet also deliver their quarterly results that night. Microsoft has Azure, the second-biggest cloud behind AWS, and is also developing custom chips. The Alphabet-owned Google Cloud is No. 3 and is building up its custom chip business, which has Broadcom as a co-designer, while also running its own AI model, Gemini, to compete against the likes of OpenAI’s ChatGPT. (Jim Cramer’s Charitable Trust is long AMZN, META, NVDA, GOOGL, MSFT, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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