Key Points
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Elon Musk has finally admitted that Anthropic is the current leader in AI.
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Amazon is poised to greatly benefit from its relationship with Anthropic.
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The growth of Amazon’s cloud business should deliver gains for shareholders even with Amazon’s large starting valuation.
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It takes a lot for Elon Musk to admit he’s wrong. A year ago, the leader of SpaceX and Tesla said that Anthropic would never be a leader in artificial intelligence (AI). Today, he has admitted this was incorrect, with Anthropic the fastest-growing AI start-up in the world, with annualized revenue estimated at double that of its competitor OpenAI.
For Musk, this means potential AI infrastructure revenue at SpaceX, which just signed a nice commitment from Anthropic. But there is another megacap technology company that may benefit even more from Anthropic’s meteoric rise: Amazon (NASDAQ: AMZN).
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Massive cloud commitments
Amazon made an early bet to become the lead infrastructure backer for Anthropic, likely after its cloud competitor, Microsoft, did the same with OpenAI. Amazon has invested over $10 billion in Anthropic and has committed to investing a total of $33 billion in the start-up. In return, Anthropic is going to utilize Amazon Web Services (AWS) as its primary cloud provider, spending $100 billion or more with Amazon.
This could be highly meaningful for AWS, especially if Anthropic keeps up this growth trajectory and soon clears $100 billion in annualized revenue, eventually reaching hundreds of billions a year. Last quarter, AWS revenue grew 37% year over year to an annualized run rate of $169 billion. A lot of this growth is due to Anthropic.
On top of this revenue growth, Amazon holds an equity stake in Anthropic estimated at over 10% (the exact figure is not known today). If Anthropic goes public in the largest initial public offering (IPO) in history — which it is reportedly preparing for later this year — Amazon’s stake could be worth something like $250 billion.
Elon Musk. Image source: The White House.
Is Amazon stock a buy because of Anthropic?
The appreciation of Amazon’s stake in Anthropic will be a nice boost for Amazon, but the real value comes from Anthropic’s commitments to AWS, including Amazon’s homegrown computer chips. This will set the standard for other AI start-ups and Fortune 500 enterprises, leading to even more revenue growth in the years ahead.
Amazon management believes that AWS can eventually grow to $1 trillion in revenue. It may take a decade or longer for that to happen, but it gives the business a massive growth runway. Right now, Amazon trades at a market cap of $2.86 trillion. If Amazon grows its AWS revenue to $1 trillion, the stock may be worth multiples of that on its own, not even including the e-commerce and advertising businesses.
For its relationship with Anthropic and more, Amazon stock is worth buying right now.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, and Tesla. The Motley Fool has a disclosure policy.
