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

A human-like robot checks out market performance on a laptop, indicating the rise of AI shares.
Technology Shares

3 top performing ASX AI shares for your watchlist

Have you positioned your portfolio to capitalise on the next tech revolution?

Read more »

Two IT professionals walk along a wall of mainframes in a data centre discussing various things
AI Stocks

3 reasons to buy NextDC shares today

A leading expert forecasts more growth to come for NextDC's rebounding shares.

Read more »

A share market analyst looks at his computer screen in front of him showing ASX share price movements
Technology Shares

Why this $3.9 billion acquisition makes Xero shares a buy today

A leading expert forecasts that Xero’s $3.9 billion investment is about to pay off.

Read more »

Three young people in business attire sit around a desk and discuss.
Small Cap Shares

Tiny tech: 3 ASX small-cap shares with new ratings

Toby Grimm of Baker Young and Peter Day of Sequoia Wealth Management share their new ratings.

Read more »

Smiling young parents with their daughter dream of success.
Technology Shares

Could Life360 shares rise to $37.50?

Bell Potter has given its verdict on this tech stock.

Read more »

Man smiling at a laptop because of a rising share price.
Technology Shares

Investors should put these 2 top ASX tech shares on the watchlist

Looking for growth? These two stocks are delivering.

Read more »

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
Share Gainers

ASX tech shares outperformed US tech stocks by 2:1 in FY25. Here's why

Forget the Magnificent 7! Aussie tech shares had twice as much price growth as US tech stocks in FY25.

Read more »

A person sitting at a desk smiling and looking at a computer.
Technology Shares

3 ASX 200 tech shares to buy in July: Experts

The ASX tech sector delivered outstanding returns for investors in FY25.

Read more »