Amazon Partners with Databricks to Enhance AI Capabilities

Amazon.com Inc AMZN has formed a five-year agreement with the data and AI company Databricks to offer businesses more affordable tools for building artificial intelligence (AI) applications. The financial details of this deal have not been made public.

Leveraging AI Chips to Compete in the Market

This partnership focuses on Amazon’s Trainium AI chips, which provide a cost-effective alternative to Nvidia Corp’s NVDA well-known graphics processing units (GPUs). These chips are aimed at companies interested in creating or customizing their AI models.

Databricks Aims to Disrupt Nvidia’s Dominance

Databricks plans to pass the savings from using Amazon’s chips directly to customers, positioning itself as a strong competitor against Nvidia.

Big Names Turn to Databricks

Databricks serves notable customers like W.W. Grainger, Inc GWW and Edmunds.com, as both companies enter the competitive enterprise AI space. They face intense competition from major players like Microsoft Corp MSFT and Snowflake Inc SNOW.

A Strong Player in AI

As of 2023, Databricks has a valuation of $43 billion and has made significant moves in the AI sector, including the acquisition of AI startup MosaicML for $1.3 billion.

Amazon and Databricks Work Together

Through their existing partnership, Databricks customers can access its data services via Amazon Web Services (AWS). The new agreement also entails Databricks increasing its use of Nvidia GPUs rented through AWS. Naveen Rao from Databricks noted that AWS has brought in over $1 billion in revenue and remains the company’s fastest-growing cloud partner.

Rao mentioned to the WSJ that the collaboration with Amazon will enable Databricks to transfer cost savings to its customers by using Amazon’s AI chips.

Cost Benefits and Market Performance

According to Dave Brown of Amazon Web Services, Amazon’s Trainium chips—crafted specifically for AI tasks—can help businesses reduce their AI development costs by up to 40%.

This year has seen Amazon’s stock increase by more than 41%, while Nvidia’s stock has surged by 195%, fueled by the growing interest in AI technologies.

Analysts Weigh In on Market Outlook

Analyst Nicholas Jones from JMP Securities forecasts that Amazon AWS will outperform Microsoft Azure, especially given Azure’s challenges in certain European markets and existing capacity issues.

Scotiabank analyst Nat Schindler and JP Morgan‘s Doug Anmuth have also highlighted AWS AI’s strategy to offer flexible, cost-effective solutions, potentially making it a key ally for companies working with AI.

Market Update

Price Actions: At last check on Tuesday, AMZN shares were down 1.34%, trading at $185.52.

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