Photo Credit: simone.brunozzi/Flickr.com
 

Yesterday, Amazon (Nasdaq: AMZN) announced a $38 billion deal with OpenAI that sent its stock soaring. Last week, Amazon announced strong quarterly results that had already sent the stock soaring 10% to an all-time high in the after-hours trading session.
 

Amazon’s Financials

Amazon’s third quarter revenues grew 13% to $180.17 billion, exceeding analyst estimates of $178.1 billion. EPS of $1.95 was also significantly better than the analyst expectations of $1.57.

Revenues from Amazon Web Services (AWS) grew 30% to $33 billion, ahead of analyst estimates of $32.4 billion. Advertising services revenues of $17.7 billion were also ahead of analyst estimates of $17.3 billion. Online store sales grew 10% to $67.4 billion and physical store sales grew 7% to $5.6 billion. Third party seller services also saw an increase of 12% to $42.5 billion. Revenues from other subscription services grew 11% to $12.6 billion.

Amazon expects current quarter revenues of $206-$213 billion, compared with market expectations of $208 billion. With the continued push to accelerate AI-related spending, Amazon raised its forecast for capital expenditures to $125 billion from an earlier estimate of $118 billion. Amazon expects to further increase this spend in 2026. Amazon will continue to become leaner and is planning to lay off 14,000 corporate employees toward this goal. It ended last quarter with 1.58 million employees, recording a 2% increase over the year.
 

Amazon’s AI Investments

Amazon continues to remain focused on AI investments and yesterday announced a multi-year tie-up with OpenAI. The $38 billion deal provides OpenAI the ability to immediately access AWS’s infrastructure to run and scale AI workloads. Through the seven years of the agreement, OpenAI will be able to access AWS’s compute that comprises of hundreds of thousands of NVIDIA GPUs with the ability to expand to tens of millions of CPUs to rapidly scale agentic workloads.

During the first phase of the deal, OpenAI will use existing AWS data centers. Amazon will build out additional infrastructure to support OpenAI’s data requirement. Till earlier this year, OpenAI had an exclusive contract with Microsoft for GPU capacity. Last month, Microsoft was no longer the preferred vendor for OpenAI, enabling OpenAI to seek alternate vendors like Amazon.

Last week, AWS had announced the completion of its AI data center project, Project Rainier. Claiming to be one of the world’s largest AI compute clusters with nearly half a million Trainium2 chips, AWS built the AI infrastructure project in less than one year. The data center is being used by OpenAI’s rival, Anthropic, for its AI workloads. AWS expects to provide Anthropic with more than 1 million Trainium2 chips by the end of 2025.  

Unlike traditional chips, Trainium2 is specialized for processing enormous amounts of data required to teach AI models. While the current agreement with OpenAI is for use of Nvidia’s chips, the agreement has the potential of being expanded to include additional silicon in the future. Amazon will surely want to get OpenAI to try its custom-built Trainium chip as well.

OpenAI has been investing heavily in capacity buy-out. It signed a $250 billion deal with Microsoft for its Azure services, a $300 billion deal with Oracle, a $22 billion deal with AI data center provider CoreWeave besides other large deals with Broadcom, AMD, and Nvidia. Some analysts worry that this is the AI bubble that will burst soon given the disparity in spending and revenues for companies like OpenAI. For now though, companies appear to be raking in the benefits.

Amazon’s stock is trading at $254 with a market capitalization of $2.71 trillion. It touched a 52-week high of $258.60 after the OpenAI deal announcement. The stock has recovered from the 52-week low of $161.38 that it was trading at in May.

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