Amazon (AMZN) is investing in its own AI chip development but maintains it’s not looking to compete with industry leader Nvidia (NVDA). At its annual re:Invent conference on December 3rd, Amazon Web Services (AWS) unveiled plans for a massive AI supercomputer, the Ultracluster, powered by hundreds of thousands of its custom-designed Trainium chips.
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AWS is positioning Trainium as a cost-effective alternative to Nvidia’s Graphics Processing Units (GPUs), which currently dominate the AI training landscape. Data from International Data Corp., cited by The Wall Street Journal, indicates Nvidia holds a commanding 95% market share in AI chips.
Focus on Customer Choice, Not Competition
“Today, there’s really only one choice on the [graphics-processing-unit] side, and it’s just Nvidia,” stated AWS Chief Executive Matt Garman. “We think that customers would appreciate having multiple choices.”
This sentiment is echoed by Gadi Hutt, senior director of customer and product engineering at Annapurna Labs, Amazon’s chip design subsidiary. In a recent interview with Business Insider, Hutt emphasized that the goal is not to displace Nvidia. “Nvidia is a very important partner for us. It’s really about giving customers choices,” he explained. “It’s not a competition. There’s no machine-learning award ceremony every year.”
Even as it develops its own silicon, AWS continues to collaborate with Nvidia on initiatives like Project Ceiba, another AI supercomputer program. Apple, a notable AWS Trainium customer, recently launched its first major generative AI product, Apple Intelligence. Trainium 2, already available at approximately 40% less than comparable Nvidia GPUs, will be followed by the release of Trainium 3 next year.
AWS Fuels Amazon’s Q3 Growth
AWS played a crucial role in Amazon’s strong third-quarter performance in 2024. Net income surged to $15.3 billion ($1.43 per share) compared to $9.9 billion (94 cents per share) in the same period the previous year. Net sales increased 11% year-over-year, reaching $158.9 billion.
AWS sales jumped 19% to $27.5 billion, representing roughly 17% of Amazon’s total net sales. The segment’s operating income reached $10.4 billion, a significant increase from $7.0 billion in Q3 2023 and accounting for about 60% of Amazon’s total operating income for the quarter. AWS, the world’s leading cloud services provider with a 31% market share according to Synergy Research Group, empowers businesses and government agencies to optimize IT operations and reduce costs. Microsoft Azure and Google Cloud trail with 20% and 13% market share, respectively.
Analysts Bullish on Amazon’s Prospects
Positive sentiment surrounding Amazon is reflected in recent analyst activity. Roth MKM raised its price target on Amazon to $250 from $220, maintaining a buy rating and designating the stock as its top mega-cap pick for 2025. The firm cited growing confidence in cloud demand fueled by advancements in generative AI and AWS’s potential for accelerated AI cloud growth. Roth MKM also highlighted the rapid development of Amazon’s comprehensive AI cloud offerings, including Bedrock, Foundational Models, and its in-house silicon.
BMO Capital, reiterating an outperform rating and a $236 price target, anticipates AWS benefiting from near-term growth in cloud and AI workloads. As of December 9th, Amazon’s stock price stood at $226.09, reflecting a 49% year-to-date gain. The company’s strategic investments in AI, coupled with its dominant position in cloud computing, position it for continued growth in the rapidly evolving technological landscape.
