AWS, Amazon’s (NASDAQ: AMZN) cloud computing division, has held first place in the sector worldwide for years. Microsoft is in second place and is gaining. AWS appears to be struggling but has implemented a way to keep sales rising quickly.
CNBC states, “Amazon Web Services is doubling the value of credits that some startups can use on its products from $100,000 to $200,000.” The news channel speculates that Micorosft’s lead in AI has helped it improve the attractiveness of its cloud products. Many observers believe that Microsoft’s (NASDAQ: MSFT) relationship with OpenAI has given it that lead in most AI-based products.
Some signs are that Amazon is playing catchup with Microsoft’s AI initiatives. Reuters reports that recently, “Amazon.com announced a new artificial intelligence chip for its cloud computing service as competition with Microsoft to dominate the market for artificial intelligence heats up.” Amazon also announced it would let clients use their AI products on AWS instead of the AWS products.
AWS is critical to Amazon’s financial success. AWS was only $25 billion of Amazon’s $143 billion total in the most recent quarter. Its operating income for the same period was $9.4 billion compared to Amazon’s total of $15 billion.
It is hard to overstate what AWS means to Amazon’s share price. So far this year, Amazon’s stock price is up 27%, while the S&P 500 is up about 19%. Amazon must show that it can keep AWS as the sector’s No. 1 service or risk the premium it trades compared to the market. The recent rally in Microsoft could be in trouble.
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