Amazon’s AI strategy is set to deliver a chip edge: Morning Brief

That’s The Takeaway from today’s Morning Brief, which you can REGISTER to receive in your inbox every morning along with:

At the start of the new year, Amazon ( AMZN ) employees will be forced to work from their desks five days a week, tightening a rule that allowed them to work from home in an attempt to revitalize the company’s culture — and achieve the broader CEO shakeup Andy Jassy’s restructuring and belt tightening.

The successor to Amazon CEO Jeff Bezos considers it a top priority to strengthen the internal culture.

“We want to operate like the biggest startup in the world,” he wrote in a memo to employees earlier this month. For years he worked to improve the cost structure and operating margins of the Everything store. And in addition to operations, the company faces other challenges, from upstart discount retailers to the nagging perception that it’s lagging behind in the AI ​​arms race.

But this last hurdle may have already been cleared.

Analysts say Amazon’s cloud business, AWS, has invested enough to catch up with the industry’s first mover, Microsoft ( MSFT ), that its position may even be advantageous. Amazon’s ability to deploy its own chips in its data centers — at a fraction of the cost of relying on Nvidia — is key.

Some analysts argue that Amazon has an edge over its competitors on two fronts: First, over Microsoft, which was hit with a rare downgrade earlier this week for relying too heavily on Nvidia’s ( NVDA ) AI infrastructure . Or, as Gil Luria, managing director at DA Davidson, told Yahoo Finance, “Microsoft is so reliant on Nvidia that it’s almost transferring wealth from its own shareholders to Nvidia shareholders.”

Jassy also appears to have an answer to recent grumblings about returns on investment as tech giants devote tens of billions of dollars to AI capital spending. Amazon expects AI to generate tens of billions of dollars for its cloud business in the coming years.

Of course, it’s still too early to tell whether something like “AI chip sovereignty,” the fancy word for vertical integration, will be a key factor in the monetization of AI tools, or whether Nvidia’s undoing in the chip battle will be all that helpful. Amazon is taking a more “all are welcome” marketplace approach to large language models, offering customers a wide range of advanced models to choose from, rather than offering a single proprietary offering.

Some on Wall Street see another near-term advantage over another rival: Google. Stung by the potential threat of ChatGPT disrupting a search-based business model, as well as increased antitrust enforcement of search practices, Google poses short-term risks that make Amazon look more attractive.

The story continues

Amazon shares are up nearly 30% this year. Among its “Magnificent Seven” peers, only Nvidia’s stunning growth and Meta transformation ( META ) outperformed.

The company is reportedly set to unveil a new AI-powered Alexa as early as next month. Another positive shake-up in the Amazon AI story could be the most powerful cultural shift there is.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.

Click here for the latest technology news that will impact the stock market

Read the latest financial and business news from Yahoo Finance