For years, AWS maintained a dominant position in cloud computing, but competition intensified as Microsoft and Google secured major contracts involving AI-powered cloud platforms. Data from Synergy Research Group show Amazon’s cloud market share declined to 29% as of September, from 34% prior to the launch of ChatGPT in 2022. Many investors viewed Amazon as slow to adapt to the AI wave, noting its delayed release of a large language model and the absence of a consumer chatbot comparable to ChatGPT.
However, Amazon has accelerated its AI investment. Last month, it opened the $11 billion Project Rainier data center in Indiana, where AI startup Anthropic trains its models using Amazon’s proprietary Trainium chips. The OpenAI deal, combined with strong quarterly results, suggests AWS is regaining strength in the competitive cloud market.
Mamta Valechha, an analyst at Quilter Cheviot, said: “While it is small relative to other deals OpenAI has made with other cloud providers, it represents a key first step in Amazon's effort to partner with a company that is spending over a trillion dollars on computing power in the coming years.”
Amazon’s stock rose 5% following the announcement, reaching a record high after months of minimal change. This contrasted with other major technology companies that have already benefited from AI-related cloud contracts worth hundreds of billions of dollars. Microsoft recently revealed a $250 billion OpenAI commitment for Azure cloud services, Oracle signed a $300 billion deal with the startup, and Google reached a multibillion-dollar chip supply agreement with Anthropic.
Despite these advances, Amazon’s AI initiatives have faced internal challenges, including leadership changes. In June, a key vice president overseeing generative AI development departed for another company. To improve efficiency and support high-cost AI infrastructure, CEO Andy Jassy has streamlined management and introduced new channels for identifying inefficiencies.
The company recently announced plans to reduce its corporate workforce by about 14,000 employees, one of its largest layoffs to date. At the same time, Amazon is significantly increasing capital expenditures, projecting about $125 billion in spending this year, surpassing Alphabet’s planned $93 billion and comparable to Microsoft’s investment levels.
Analysts say the OpenAI partnership could help Amazon recover these costs. Brian Pitz of BMO Capital Markets estimated that AWS’s backlog could rise about 20% in the fourth quarter from $200 billion at the end of September. William Lee, an investor at SuRo Capital, said: “It clearly seems like they are finally in the flow of what is happening with these large language models versus before.”
The agreement underscores Amazon’s determination to strengthen its cloud business and reassert its position in the fast-growing AI infrastructure market.
