Why OpenAI’s Shift to Amazon Could Reshape the AI Infrastructure Race

Summary:

OpenAI’s $38B deal with Amazon reduces reliance on Microsoft and secures massive Nvidia GPU capacity, intensifying cloud competition. Meanwhile, market gains remain narrowly concentrated in large tech as broader sectors show weakness.

esterday morning, OpenAI announced a massive $38 billion strategic partnership with Amazon Web Services (AWS). This deal highlights OpenAI’s diversification strategy amid explosive growth and capacity demands for training advanced models like ChatGPT. Before the deal, OpenAI relied 100% on Microsoft for its cloud infrastructure.

In addition to diversifying its cloud servers, the deal may also benefit OpenAI, as it will likely introduce pricing competition among Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and other cloud services. The other beneficiary is Nvidia (NASDAQ:NVDA). Per an Amazon statement on the deal:

Under this new $38 billion agreement, which will have continued growth over the next seven years, OpenAI is accessing AWS compute comprising hundreds of thousands of state-of-the-art NVIDIA GPUs, with the ability to expand to tens of millions of CPUs to rapidly scale agentic workloads

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Bad Breadth On Full Display

It’s not hard to see the bad breadth in today’s market. As you look at the following graphs, consider that the S&P 500 is sitting just a few points from a record high, yet almost all sectors and factors, including the equal-weighted S&P 500 (RSP), are oversold and not at record highs.

The first graphic shows that the technology sector is grossly overbought relative to the S&P 500, while every other sector is oversold, and many are very oversold.

Large growth-oriented companies handily beat the S&P 500 last week, while every other stock factor underperformed. The small, more value-oriented factors underperformed the most.

Same theme in the third graphic: large growth-oriented companies are doing well, everything else is lagging.

In the fourth graphic, note the graphs on the right side. The number of stocks above key moving averages is plummeting. Similarly, the number of stocks listed as strong oversold is rising rapidly.

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Source: investing

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