Why Amazon's new AI initiatives stand to boost growth in the cloud

Published Wed, Nov 29 20234:10 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Amazon 's (AMZN) slate of announcements around artificial intelligence this week – including closer ties with AI powerhouse Nvidia (NVDA) – could accelerate growth at its highly profitable cloud-computing division next year. That would be welcome news for investors like us, as it would help Amazon stock continue to climb on the back of its 75% year-to-date increase. During the Amazon Web Services cloud conference on Tuesday, Amazon unveiled upgraded AI chips, a new chatbot and an expanded partnership with Nvidia. Taken together, Amazon's new cloud offerings give it an edge in the generative AI space. Cloud-computing providers like Club holdings Microsoft (MSFT) and Alphabet (GOOGL) have all been scrambling to bolster their suite of AI tools to serve existing customers and attract new ones. With its updates Tuesday, Amazon showcased its ability to offer more services and stay competitive in the crowded AI race. Expanded Nvidia partnership Amazon on Tuesday outlined the details of its deepening partnership with semiconductor firm Nvidia – the global leader in the development of AI chips. Amazon's announcements involved not only Nvidia' bread-and-butter AI chips known as graphics processing units, or GPUs, but also its fast-growing – yet still underappreciated – software-and-service offerings. The companies said Tuesday that AWS will be the first cloud computing provider to launch the latest version of Nvidia's GH200 Grace Hopper Superchip , which will include the new H200 GPU that Nvidia announced earlier this month. The H200 – which is expected to ship in the second quarter of 2024 – is the successor to Nvidia's H100, which has been in short supply this year as customers ramped up AI investments. Additionally, the Club holdings said Nvidia's DGX Cloud — a supercomputer accessible through a web browser — is now coming to the AWS platform . DGX Cloud, part of Nvidia's software-and-services revenue stream, was made available earlier this year on cloud-computing services run by Club holdings Oracle (ORCL), Microsoft (MSFT) and Alphabet (GOOGL). Moreover, Nvidia CEO Jensen Huang said Tuesday that the chipmaker is integrating into AWS some of its software tools that companies can use to build custom AI models. While Amazon has long been a buyer of Nvidia's cutting-edge GPUs, the company in recent years has leaned heavily on in-house chips including processors designed to train AI models. Those efforts have essentially made Amazon both a customer and competitor of Nvidia. But, as Tuesday's presentation made clear, the world's largest cloud-computing provider and the leading AI chipmaker still need each other to succeed in the AI arms race. New chips Amazon announced two new-and-improved chips. The first is Graviton4, a central processing unit, or CPU, for more general-purpose computing tasks that is considered AWS' most energy-efficient chip. The second is Trainium2, a new iteration of the original Trainium chip designed for training large language models, which is the technology that underpins viral chatbot ChatGPT. Trainium2 — which competes with Nvidia's GPUs — is four times faster than its predecessor, according to Amazon. In general, Amazon has touted its own AI chips as being a lower-cost option for customers. Nvidia's AI hardware is known to carry a hefty price tag . "Faster chips will increase the efficiency and help reduce costs of AWS customers...ultimately in our view building on its dominant position in the cloud ecosystem," analysts at JMP Securities wrote in a Tuesday research note. The analysts called the company a "formidable competitor within generative AI." Chatbot Amazon also revealed a new generative AI-powered chatbot called Amazon Q that helps support developers and IT professionals in building applications on AWS. In short, it's Amazon's answer to Microsoft's Copilot — an AI-powered assistant that helps boost productivity. Amazon Q, which is currently available as a preview version , will be able to help businesses with "improving efficiency and productivity" and "improve companies' customer experiences," according to JMP Securities. (Jim Cramer's Charitable Trust is long AMZN, NVDA, MSFT, ORCL, GOOGL. 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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Arjun Kharpal | CNBC