Should Appen (ASX:APX) shareholders worry about Amazon in 2022?

Will Amazon ruin 2022 for Appen?

| More on:
Male IT engineer shrugs his shoulders as he tries to understand network.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Appen Ltd (ASX: APX) share price is pushing higher on Wednesday.

In morning trade, the artificial intelligence data services company's shares are up 1% to $10.66.

Though, today's gain is of little consolation to the longer term shareholders that have watched the Appen share price sink 58% in 2021.

Why is the Appen share price down 58% this year?

Investors have been selling down the Appen share price this year amid concerns over the company's outlook.

This is being caused by potential structural changes and increased competition in the industry.

In respect to the structural changes, a recent note out of Macquarie Group Ltd suggests that many large tech companies are bringing their data annotation in-house and cutting out service providers like Appen.

This led to the broker downgrading Appen's shares to an underperform rating with a reduced price target of $9.50.

The Amazon threat

Also weighing on the Appen share price has been concerns about Amazon's entry into the data annotation market.

At Amazon's recent AWS re: Invent 2021 event, the company announced new capabilities for its SageMaker machine learning service platform. One of those was the Amazon SageMaker Ground Truth Plus capability.

Amazon explained: "Amazon SageMaker Ground Truth Plus offers a fully managed data labeling service that uses a highly skilled workforce and built-in workflows to deliver high-quality annotated data for training machine learning models faster at lower cost."

While the team at Citi acknowledge that Amazon is a threat to Appen's business and this launch could mean the company needs to invest more into its platform, its analysts are not panicking just yet.

Citi commented: "We do note that Amazon's offering does not currently provide customers the ability to collect data which is a gap compared to Appen's offering."

It also feels that Amazon's move reinforces the importance of having human annotators developing machine learning models.

As such, Citi continues to hold firm with its buy rating and $17.10 price target. This implies potential upside of over 60% for the Appen share price from current levels.

Time will tell which broker makes the right call.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Appen Ltd. The Motley Fool Australia owns and has recommended Appen Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Technology Shares

Happy woman working on a laptop.
Technology Shares

Up 60% since April, why this $40 billion ASX 200 tech stock remains a 'compelling buy' today

A leading expert believes this $40 billion ASX 200 tech stock has a lengthy growth runway ahead of it yet.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

DroneShield shares sink 7% despite big news

Let's see what's going on with this market darling on Thursday.

Read more »

A man activates an arrow shooting up into a cloud sign on his iPad.
Technology Shares

Up 25% since April, is it too late to buy Xero shares today?

A leading expert gives his verdict on the growth outlook for Xero shares.

Read more »

Man looking at digital holograms of graphs, charts, and data.
Technology Shares

2 amazing ASX tech shares I wish I'd bought last year

These tech companies are among the world’s best companies.

Read more »

A man in a business suit and tie places three wooden blocks with the numbers 1, 2, and 3 on them on top of each other.
Broker Notes

3 reasons to buy this booming ASX All Ords tech stock today

A leading broker forecasts more gains to come from this surging ASX All Ords tech stock.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Hologram of a man next to a human robot, symbolising artificial intelligence.
AI Stocks

Why Macquarie forecasts a big rebound for these 2 quality ASX All Ords tech stocks

Macquarie expects a big rebound is coming for these AI linked, ASX All Ords tech stocks.

Read more »

A young man goes over his finances and investment portfolio at home.
Technology Shares

Is it too late to buy DroneShield shares?

This high-flying stock is up 90% since this time last month. Where next? Let's find out.

Read more »