Amazon custom chips get a boost from Meta, giving the cloud giant another path to win in AI
Amazon shares are finally experiencing the rally we’ve been waiting for, and another AI chip gain on Friday may help explain why. Shares of the e-commerce and cloud giant are up nearly 3% to above $263 and are 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 meet the social media and AI company’s massive computing needs. The deal, which will run for at least three years, puts Meta among the top five customers of Graviton, central processing units (CPUs) based on the Arm Holdings architecture, our newest Club stock. The partnership is important because it highlights Amazon Web Services’ growing position in providing the infrastructure behind one of the most vital races in technology: artificial intelligence. As hyperscalers scramble for enough computing capacity to meet AI goals, Amazon is increasingly showing that it can compete as both a cloud and chip provider. This is a key part of Amazon’s rise that is resonating with investors. “People are realizing that everything they said in the (investor) letter actually happened,” Jim Cramer said during the Investment Club’s Morning Meeting on Friday, referencing Amazon CEO Andy Jassy’s latest shareholder letter released earlier this month. “So far, nearly all AI has been done on Nvidia chips, but a new shift has begun,” Jassy said in the letter, noting how companies are looking for alternatives to Nvidia’s leading graphics processing units (GPUs) such as AWS Graviton and Trainium. Amazon’s chips could help lower costs for AWS cloud customers, the CEO said. While Nvidia GPUs continue to be the chips of choice for AI training due to their advanced ability to process large amounts of data, the rise of CPUs is driven by the cost efficiency and scalability of real-world AI applications. Amazon has devoted years to building a chip portfolio that includes both Graviton CPUs and Trainium accelerators that act like GPUs. Amazon notes that CPUs like Graviton are best suited for “always-on reasoning workloads” that require constant decision-making. On the other hand, Trainium and GPUs are good at training AI models. “Our annual revenue rate in our chips business (including Graviton, Trainium and Nitro – our EC2 NIC) is now over $20 billion and growing at triple-digit percentages each year,” Jassy said in the letter. According to Meta, the objection is also clear. Training AI and running daily tasks is expensive, and offloading some of these workloads to Graviton could reduce computing costs. This is important for a company that distributes AI to billions of users through Facebook, Instagram, and its advertising platform, where content and recommendations must be constantly delivered at scale. Jim also remains bullish on the Meta. He called the stock “a scream buy at this point because the stock is falling because of its efficiency,” referring to Meta CEO Mark Zuckerberg. “He seems to understand when to use middlemen and when to use people,” Jim added after Meta’s layoff announcement on Thursday. Ultimately, the Meta-Amazon Graviton partnership favors both tech giants in one way or another, but it’s a particular win for AWS, which is trying to capture more of the AI boom by selling the scarce chips that power it. We have a buy-equivalent rating of 1 on Amazon with a $250 price target. We also have a 1 rating on Meta with a price target of $825. Both Amazon and Meta will report earnings after the closing bell next Wednesday. Microsoft and Alphabet also announced their quarterly results that night. Microsoft owns Azure, the second largest cloud after AWS, and also develops custom chips. Alphabet-owned Google Cloud is No. 3 and is building its custom chip business, which Broadcom co-designed and also runs its own AI model, Gemini, to compete with OpenAI’s ChatGPT. (Jim Cramer’s Charitable Trust is long AMZN, META, NVDA, GOOGL, MSFT, AVGO. See here for a full list of stocks.) When you subscribe 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 trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
