Amazon (NASDAQ: AMZN) is a small Berkshire holding compared to Apple, accounting for just 0.4% of its portfolio. But since the company’s first purchase of Amazon stock in 2019, Buffett has often lamented not understanding the e-commerce giant’s potential sooner. It may feel progressively worse over time, as Amazon is moving forward with a very aggressive AI strategy.
Amazon Web Services (AWS) is Amazon’s industry-leading cloud computing division, which operates an estimated 125 data centers worldwide and is also home to many of the company’s artificial intelligence projects. Last month, Amazon invested $4 billion in generative AI developer Anthropic, which represents the second-largest investment in an AI startup after Microsoft’s $10 billion bet on ChatGPT creator OpenAI.
The deal should help Amazon implement its three-pronged approach in the artificial intelligence arena. First, it developed data center chips called Inferentia and Trainium, which are designed as replacements for chips made by Nvidia. Anthropic will use Amazon’s chips to develop and train future models of its chatbots, which could accelerate adoption of the devices by enticing other AI startups to consider Amazon over industry leader Nvidia.
Second, AWS offers Large Language Models (LLM) to its customers. It takes mountains of data and significant financial resources to develop an LLM from scratch, so most companies prefer to adopt ready-made alternatives that they can build on. AWS already offers several third-party LLMs including those it has built internally, but Anthropic will be required to place all of its future models on the AWS platform.
Finally, AWS offers off-the-shelf AI applications like CodeWhisperer to help customers develop software more quickly and increase their overall productivity.
Artificial intelligence is poised to add between $7 trillion and $200 trillion to the global economy by 2030, depending on which Wall Street forecast you rely on. But its financial potential is clearly amazing even at the low end, and AWS is positioning itself to be a major distributor of the technology.
Amazon could prove to be the best AI company Berkshire holds over the long term, even though it represents only a small portion of its portfolio.