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

Will Amazon ruin 2022 for Appen?

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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.

Should you invest $1,000 in Appen right now?

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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.

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