Amazon stock is finally having the breakout we’ve been waiting for, and another win for artificial intelligence chips on Friday may help explain why. The e-commerce and cloud giant’s shares soared nearly 3% to more than $263 each, marking their second all-time high close this week. The latest catalyst: Friday morning’s announcement that Meta Platforms has agreed to use Amazon’s Graviton chips to help social media and AI companies run their large-scale computing needs. The agreement is expected to last for at least three years and will make Meta one of Graviton’s top five customers. Graviton is a central processing unit (CPU) based on the architecture of Arm Holdings, our newest club stock. This partnership is significant because it spotlights Amazon Web Services’ growing position in one of the technology sector’s most important races: providing the infrastructure behind AI. As hyperscalers compete for enough computing power to meet AI ambitions, Amazon is increasingly showing that it can compete as both a cloud and chip provider. This is a key part of Amazon’s bull case that resonates with investors. “People are realizing that everything we said in that letter (to investors) is coming true,” Jim Cramer said Friday at the investment club’s morning meeting, referring to Amazon CEO Andy Jassy’s latest shareholder letter issued earlier this month. “Nearly all AI to date has been done on Nvidia chips, but a new transition has begun,” Jassy said in the letter, noting how companies are looking for alternatives to Nvidia’s pioneering graphics processing units (GPUs) such as AWS Graviton and Trainium. The CEO said Amazon’s chips will help reduce costs for AWS cloud customers. While Nvidia GPUs remain the preferred chip for AI training due to their advanced ability to process vast amounts of data, the rise of CPUs is being driven by cost efficiency and scalability for real-world AI applications. Amazon has spent years building a chip portfolio that includes both Graviton CPUs and Trainium accelerators that act like GPUs. Amazon describes CPUs like Graviton as ideal for “always-on inference workloads” that require continuous decision-making. On the other hand, Trainium and GPUs are great for training AI models. “The annual revenue run rate for our chip business (including Graviton, Trainium, and Nitro (our EC2 NIC)) is now over $20 billion, increasing by triple-digit percentages year-over-year,” Jassy said in the letter. Its appeal is obvious for metas as well. Training AI and performing daily tasks is expensive, and moving some of those workloads to Graviton can potentially reduce compute costs. This is important for companies deploying AI to billions of users across Facebook, Instagram, and advertising platforms that need to continuously deliver content and recommendations at scale. Jim also remains bullish on Meta. He cited Meta CEO Mark Zuckerberg, calling the stock “a screaming buy at this point because his efficiency is driving down the stock price.” “He seems to understand when to use an agent and when to use talent,” Jim added following Meta’s Thursday layoff announcement. Ultimately, Meta’s partnership with Amazon’s Graviton is somehow advantageous for both tech giants, but it’s especially advantageous for AWS, which is looking to further tap into the AI boom by selling the rare chips that power AI. It has a rating of 1 on Amazon, which equates to Buy, and a target price of $250. Additionally, Meta has a rating of 1 and a price target of $825. Amazon and Meta will report earnings after the closing bell this Wednesday. Microsoft and Alphabet will also report their quarterly results that night. Microsoft owns Azure, the second largest cloud after AWS, and also develops custom chips. Alphabet’s Google Cloud, in third place, is building a custom chip business with Broadcom as a co-designer, while also running its own AI model, Gemini, to compete with the likes of OpenAI’s ChatGPT. (Jim Cramer’s charitable trusts are long AMZN, META, NVDA, GOOGL, MSFT, AVGO. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
