Amazon’s AI Gambit: Massive Investment in Anthropic Pays Off Amid Cloud Computing Race
Amazon’s third-quarter financial results revealed a surprising twist in the company’s profit story. While the e-commerce and cloud giant reported a 38% jump in profits to $21.2 billion, nearly half of that impressive figure—$9.5 billion to be precise—came not from selling products or cloud services, but from a paper gain on its investment in AI startup Anthropic. This accounting windfall, triggered when Anthropic’s valuation soared to $183 billion in its September funding round, highlights how deeply Amazon has woven artificial intelligence into its strategic future.
The significance of this paper gain becomes clearer when compared to Amazon Web Services (AWS), the company’s traditional profit powerhouse, which generated $11.4 billion in operating profits during the same quarter. Amazon’s relationship with Anthropic extends beyond mere investment, with the company just unveiling “Project Rainier,” an $11 billion AI data center complex where Anthropic’s Claude AI models run on hundreds of thousands of Amazon’s custom-designed Trainium 2 chips. This massive infrastructure project represents Amazon’s commitment to building the computational backbone necessary for the next generation of AI applications.
The AI arms race between tech giants is accelerating at breakneck speed. Amazon faces fierce competition from Microsoft, which recently strengthened its partnership with OpenAI (maker of ChatGPT), and Google, which reported record cloud revenue driven by AI applications. This competitive landscape has triggered unprecedented capital expenditures across the cloud computing industry. Amazon alone spent $35.1 billion on property and equipment in the third quarter—a 55% increase from the previous year—with much of that directed toward AI infrastructure. CEO Andy Jassy defended this aggressive spending strategy during the company’s earnings call, assuring investors that “as fast as we’re adding capacity right now, we’re monetizing it,” and characterizing the current moment as “an unusual opportunity for customers and AWS.”
However, these massive investments are beginning to impact AWS’s financial performance in complex ways. While AWS sales grew by an impressive 20% to $33 billion, its operating income increased by just 9.6% to $11.4 billion. This widening gap between revenue growth and profit growth suggests that Amazon’s heavy AI investments are temporarily compressing profit margins. The company is clearly betting that short-term margin pressure will lead to substantial business expansion over the long run. The investments are also affecting Amazon’s overall cash position, with free cash flow dropping 69% over the past year to $14.8 billion, reflecting the enormous capital outlays required to build next-generation AI infrastructure.
Amazon’s total investment in Anthropic now stands at $8 billion, initially structured as convertible notes, with a portion already converted to equity following Anthropic’s March funding round. This strategic partnership gives Amazon a strong position in the AI race without having to build all the foundational technology in-house. By partnering with Anthropic, Amazon can focus on what it does best—building massive, efficient cloud infrastructure—while leveraging Anthropic’s expertise in developing sophisticated AI models. The relationship benefits both companies: Anthropic gains access to Amazon’s vast computing resources and financial backing, while Amazon secures a stake in one of the most promising AI startups and ensures AWS remains competitive as cloud computing increasingly centers around AI capabilities.
The opening of Project Rainier marks a significant milestone in Amazon’s AI journey. This massive compute cluster, running on Amazon’s own AI chips rather than the Nvidia GPUs that dominate the market, demonstrates the company’s commitment to controlling more of its AI technology stack. As businesses across every industry rush to incorporate AI into their operations, the demand for cloud-based AI computing capacity continues to surge. Amazon’s willingness to invest heavily today positions the company to capture this growing demand tomorrow. While the immediate financial impact of these investments shows in compressed margins and reduced cash flow, Amazon is clearly playing the long game—betting that its AI infrastructure buildout will cement AWS’s position as a leader in what may become the most important computing paradigm of the next decade.
