Amazon’s stock climbed 5% after securing a $38 billion deal with OpenAI, following a 10% rise post-strong Q3 earnings. This agreement involves Amazon Web Services offering its infrastructure to support OpenAI’s AI workloads.

The partnership extends over seven years, enabling OpenAI to leverage AWS’s cloud computing capabilities. OpenAI will use AWS’s infrastructure for AI tasks, such as model training and operating products like ChatGPT. AWS’s system supports numerous Nvidia GPU chips and can scale for growing computational demands.

The deal suggests AWS will receive an extra $5.5 billion in annual revenue. AWS’s high-margin strategies, with around a 35% operating margin, predict roughly $1.9 billion more in yearly earnings. Initially, Microsoft was OpenAI’s exclusive cloud provider, but now AWS also benefits, balancing Microsoft’s advantage.

Analysts view the deal positively. They note it’s a validation for AWS and boosts Amazon’s position in AI. Some analysts increased Amazon’s stock price target, with Wedbush raising it to $340 per share. Currently, Amazon’s stock trades at $254, up 14% recently, with a 16% YTD gain. The stock’s median target is $290, offering a 14% potential upside.

The recent 15% surge in Amazon’s stock has pushed implied volatility to levels we have not seen since the Q2 earnings report earlier this year. This makes outright buying of call options expensive, suggesting traders should consider strategies that benefit from high premiums. Selling cash-secured puts with strike prices below current support levels, perhaps around $240, could be an attractive way to collect this inflated premium while defining a clear entry point.

This $38 billion OpenAI deal is a significant validation for AWS in the ongoing cloud infrastructure battle against Microsoft and Google. As of the last quarter, we saw AWS maintain its dominant market share at around 31%, and this partnership solidifies its position as a key supplier for the most demanding AI workloads. It shifts the narrative from speculative AI bets to tangible, long-term revenue streams.

We are also seeing a more favorable macro environment than we had back in 2024, with the Federal Reserve’s latest meeting minutes signaling a continued pause on interest rates. Coupled with recent data showing retail sales grew a respectable 2.8% year-over-year in October, the outlook for Amazon’s core business heading into the critical holiday quarter looks solid. This provides a fundamental tailwind that supports a bullish stance on the stock.

Given the Wedbush price target of $340, bull call spreads are worth exploring to manage the high cost of options. For example, buying a January 2026 $260 call and simultaneously selling a $290 call could capture upside potential while capping the initial expense. This strategy aligns with the median analyst target and profits from a continued, steady climb rather than another explosive spike.

We remember the frenzied AI rally of 2023 and 2024, where many tech valuations became detached from fundamentals. This AWS-OpenAI deal, however, represents a maturing market where concrete, multi-billion dollar contracts are now the primary drivers of value. Traders should be looking for similar tangible deals from other cloud providers as a sign of who will be the long-term winners.