Amazon Makes AI Push as it Faces FTC Monopoly Lawsuit
US FTC vs Amazon
The US Federal Trade Commission (FTC) has adopted a hard line against dominant corporations under Chair Lina Khan, who was sworn in a little over two years. Ms Khan is a known critic of Big Tech and Amazon.com in particular. Back in 2017, she had published an essay on the Yale Law Journal, titled "Amazon's Antitrust Paradox" [1], so it's no surprise that the tech and ecommerce behemoth has come under increased scrutiny during Ms Khan's tenure.
The FTC sued Amazon in June, for enrolling customers to its paid Prime service without their consent and for impeding their efforts to cancel the subscription [2]. Not long before that, the firm settled a complaint around its Alexa voice assistant and the recordings of children's voice data [3]. Amazon-owned home-security firm Ring, agreed to pay $5.8 million to settle charges that it compromised customers' privacy. [4]
Monopoly Lawsuit
The FTC's recent actions culminated to Tuesday's landmark antitrust lawsuit against the online retail giant. The agency accuses Amazon.com of engaging in "anticompetitive and unfair" practices in order to "illegally maintain its monopoly power", harming other sellers as well as shoppers. [5]
The complaint asks the court to consider "structural relief", which typically means that a company has to sell parts of its business as a cure. Speaking on Bloomberg after the announcement, Ms Khan stopped short of calling for a break-up of Amazon, saying that the complaint is "really focused on the issue of liability" at this stage, not remedy. [6]
Amazon called the lawsuit "misguided" and claimed that if FTC succeeds, "consumers and the many businesses that sell in our store" would be harmed. [7]
Broader Scrutiny
Of course the FTC is not going only against Amazon. It had also tried to block Meta's acquisition of virtual reality firm Within, but did not succeed [8]. It was also unsuccessful in its effort stop Microsoft's acquisition of Activision, in a deal that can transform the gaming industry. [9]
Furthermore, Amazon has drawn scrutiny from other regulators as well. In late-2022 agreed to a settlement with the European Commission to address concerns over its Buy Box, the Prime service and the marketplace seller data. [10]
The EU Commission recently launched its Digital Markets Act (DMA) trying to regulate the online services, from social media platforms to internet browsers and more. Earlier this month, it designated major tech companies, including Amazon, as "gatekeepers" giving them six months to ensure full compliance with the DMA obligations [11].
AI Step Up
The news took focus away from Amazon's big Artificial Intelligence (AI) bet. After its strong Q2 results, I had noted that the firm appeared to be "in the background" of this race, as focus is currently on the customer application front, such as GPT, which kick started the AI frenzy.
This changed however this week, as the tech giant announced a strategic partnership with Anthropic, developer of a ChatGPT rival, called Claude. As part of the deal, it will invest up to $4 billion in Anthropic, while the AI firm will use Amazon's cloud to build, train, and deploy its large language models. [12]
This move marks a step-up in Amazon's generative AI efforts and places it in a position to compete with other tech giants, such as Microsoft and Microsoft. AI has emerged as the main battlefield in Silicon Valley and has driven this year's NAS100 rally. Nvidia is the enabler of the AI revolution and one of my top stocks to watch in Q4. It already reaps the benefits, as its posted blowout quarterly results and its stock has roughly tripled since January.
Amazon Turnaround
These latest developments come as the new earnings season closes in. Amazon had posted strong results in Q2 2023, with profits surging to the highest in over a year and sales returning to double-digit growth. The firm also provided upbeat forward guidance.
Those results showed that the firm's efforts to leave the 2022 hardships behind it are bearing fruit. AI is the name of the game and this week's investment in Anthropic shows progress on that front too. The unfavorable regulatory environment however, was reaffirmed with Tuesday's FTC lawsuit and the outcome could shape Amazon's future.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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