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News of the Week (November 18 - 22)
Brad Freeman
November 23, 2024 • Estimated Reading Time: 8 minutes
Table of Contents
1. Amazon (AMZN) – Anthropic & More
Amazon will invest another $4 billion in Anthropic, bringing its total cash outlay to $8 billion. This will be paid out in three equal increments. The announcement includes a significant deepening of an already tight relationship. In addition to being Anthropic’s primary cloud partner, it will now be its primary Foundational Model (FM) training partner as well. Per the press release, Anthropic is “excited” about AWS’s cost performance here. I think they’re also excited about access to another $4 billion in funding, but this still offers more evidence of Amazon’s training chips (appropriately called Trainium) gaining adoption. The two will work to further customize this hardware for Anthropic-specific needs. Amazon has spoken a lot on the last few calls about needing to deliver cheaper alternatives to Nvidia’s world-class, yet expensive processors. Trainium is an instrumental part of that. Anthropic will also use AWS’s inference chips (called inferentia), but it doesn’t sound like that will be as exclusive of an arrangement.
Beyond price performance and a large incremental investment, this news is also a response to the fantastic growth AWS Bedrock has delivered for Anthropic’s Claude models. It’s a lot easier to find business when directly plugging into a cloud business environment that does $100 billion+ in revenue per year.
Finally, the two will offer shared customers the ability to customize Claude models with their own first-party data. According to the press release, fine-tuning for these specific models will be a “benefit uniquely enjoyed by AWS customers.” Anthropic is considered world-class in terms of pure-play model builders creating elite products. It’s as good or better than OpenAI, Cohere etc. Considering this, the exclusive customization item is quite the selling point for winning more cloud workloads.
Read more about Anthropic in Section 5 of this article.
Truist’s card data for Amazon’s marketplace is “slightly ahead” of estimates as of this Monday.
The AI Alexa upgrade is having latency issues.
2. Alphabet (GOOGL) – Antitrust & More
News:
The company will be openly referred to as “Search Giant” or “mega-cap” in this piece to avoid Gmail flagging the email send.
The Department of Justice is formally requesting a sale of Chrome by the Search Giant. This past summer, Judge Amit Mehta ruled that Alphabet created an illegal search monopoly, and this is the DOJ’s recommendation to resolve that finding. One may hear “illegal search monopoly” and think… uh what about Microsoft or all other mega-caps building integrated search engines or the new disruptors like Perplexity that everyone is (supposedly) using. That’s entirely fair, but remember that Chromium is what powers a lot of these players. This is Google’s open-source project used to build Chrome, Edge and many others and is the view regulators are taking to think of this as a monopoly. I think that’s a large reach.
Mehta will decide on the DOJ’s recommendation. If accepted, the search king will surely appeal and drag this process out for years. Based on the company calling this a gross power grab and bad for consumers, I think that’s a safe assumption.
Mehta’s concerns centered on two main things. First, its practice of pre-installing Chrome software on Android devices cuts consumer flexibility. It all but ensures consumers will use Chrome, as it’s the first one they see and perfectly integrated into all of the other productivity products they use every day. Secondly, the judge also explicitly called out its $20 billion deal with Apple to make Google Search the default option on Safari. This isn’t directly related to Chrome, but ties into the same dominant web presence that is being scrutinized here.
Mehta openly spoke out against these arrangements. He did not even mention the idea of forcing asset sales to weaken its grip on the industry.
Implications:
Chrome has a 60% market share and is a key piece of this mega-cap collecting needed data to target marketing impressions within ad campaigns and personalize content across search and YouTube. While it isn’t directly a cash printer for the company, it does strengthen the cash printing abilities of so many of its other products. For this reason, I don’t really find a forced sale to be a positive thing. Yes, it will make about $20 billion (estimated) from a sale and pocket another $20 billion if judges rule its Apple deal to be illegal. But? The ecosystem is what makes this company so truly special and dominant. Weakening data sharing and control within it is not good for the Search Giant in my mind. Still, if this were to happen, the company would surely create back-door data sharing agreements and preferred partnerships with Chrome to maintain as much control as it can. For this reason, I think this would be a small negative for for the company (still negative).
Likelihood & What Happens Next:
In addition to the negative impact here being modest, I don’t think this DOJ decision is at all material or meaningful. Why? Because the people making this decision will not be in power in a few weeks. The assistant attorney general has been working in tandem with FTC Chair Lina Khan on this decision. These are two of the most anti-mega-cap decision makers we’ve had in office in a long time. The new administration has already explicitly said it can create a “more fair company without breaking it up” which already offers clear evidence of the new leaders carrying a more friendly mindset.
I think it’s likely that the new administration is more friendly to this company. I also think it’s likely that a forced data sharing proposal between Google and its competitors will be thrown out. A hearing will take place next April, with a final decision expected next August.
One more note here. There’s a separate ad-tech-related antitrust suit that the Search Giant is currently dealing with. I think this one is actually a lot more material and will force the company to change its ad exchange practices. It is surely a conflict of interest to represent sell-side ad demand and to control a lot of the impressions this demand is routed to. I think that will have to change in the future, but see the material impact being a healthier digital advertising ecosystem, more so than a weak Alphabet.
More News:
Nvidia and the Search Giant are collaborating to build quantum computing machines.
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