Amazon's OpenAI Chip Talks Highlight AI Push, but DeepValue Caution on Valuation and Risks Persists

What happened

News emerged that Amazon is discussing a potential $10 billion investment and chip usage deal with OpenAI, aiming to bolster its AI infrastructure through AWS. This aligns with Amazon's aggressive capital expenditure strategy, as detailed in recent filings showing nearly $90 billion in annualized capex for AWS, AI, and logistics, which is compressing free cash flow. The DeepValue master report notes Amazon's stock trades at rich multiples—~31x trailing EPS and ~19.7x EV/EBITDA—with a DCF valuation far below the current price, indicating a thin margin-of-safety. Elevated regulatory and antitrust risks, including ongoing FTC probes, add uncertainty to such high-stakes investments. Consequently, while this news underscores Amazon's AI ambitions, it does not alter the fundamental concerns about valuation, capex productivity, and execution risks that support a 'WAIT' rating.

Implication

The rumored OpenAI investment could enhance AWS's competitive edge in AI chip adoption, potentially driving future revenue growth if successful. However, Amazon's free cash flow is under pressure from heavy capex, and investors need evidence that such spending translates into improved returns and margin expansion. Regulatory risks, including antitrust scrutiny, could limit business practices or impose costs, adding volatility to the investment case. With the stock priced for perfection, any disappointment in AI monetization or slower AWS growth could lead to multiple compression. Thus, this news reinforces the importance of watching key metrics like FCF conversion and AWS margins, rather than prompting immediate bullish action.

Thesis delta

The OpenAI news does not shift the core 'WAIT' thesis, as it aligns with Amazon's existing AI investment narrative already reflected in the high valuation. It emphasizes the need for vigilance on capex productivity and AWS growth, but the primary concerns—overvaluation, FCF compression, and regulatory exposure—remain intact. A thesis upgrade would require clear signs of sustained operating leverage from AI investments or resolution of major regulatory overhangs.