'A new shift has begun': Amazon plans to wrest market share from Nvidia

Amazon CEO Andy Jassy, in his annual letter to shareholders, boasted of the company's success in developing AI chips, and at the same time challenged Nvidia, believing he could take some customers away from the chipmaker.

Amazon President and CEO Andy Jassy wrote in his annual address to shareholders that demand for Amazon Trainium's artificial intelligence processors is "blazing." This, he believes, reflects the fact that companies are increasingly diversifying their AI chip purchases.

"Virtually all AI up until now has run on Nvidia chips, but now a new shift has begun," Jassy wrote, with the caveat that his company still has a "strong partnership with Nvidia" and Amazon "continues to make [cloud service] AWS the best platform to run on Nvidia chips.

Amazon already has agreements with OpenAI, Anthropic and Apple to provide them with cloud computing on its Trainium chips. And now, according to Jassy, the company may go even further: "it's quite possible that in the future we'll be selling their racks to third-party customers as well," he said.

The top executive emphasized that customers "need a better price-to-performance ratio" than Nvidia's chips. He compared Trainium's entry into the market to the situation that broke Intel's dominance of the CPU market following the release of Amazon's Graviton processor in 2018. "The same storyline is now unfolding in AI," he said. According to the Amazon chief, the latest Trainium3 chip offers a "30-40% better price-to-performance ratio" than the previous model.

Jassy added that a "significant portion" of Trainium4 has already been reserved, although it is still 18 months away from a widespread market launch.

The company's CEO said that Amazon's annual rate of revenue from selling computing on its own chips is already over $20 billion and growing. Access to Amazon's chips is now limited to the Amazon Web Services ecosystem, Quartz explains: customers pay to use cloud computing rather than buy physical hardware. According to Jassy, if Amazon starts selling chips not only within AWS but also to external customers - as independent chip makers do - the annual revenue of this business could reach about $50 billion.

The top executive also noted that using its own chips could help the company cut costs in its $200 billion capex program. "In a large-scale deployment, we expect Trainium to save us tens of billions of dollars a year and provide an operating margin advantage of several hundred basis points over using someone else's chips for inferencing," Jassy wrote.

The Amazon CEO's comments underscore just how many growing competitive threats Nvidia faces as it tries to maintain its dominance in the global market for advanced AI chips, writes Business Insider. More hyperscalers and AI model developers are looking to diversify their range of chip suppliers. Arm is partnering with OpenAI and Meta to develop the Arm AGI CPU. Meta is also partnering with Nvidia's main rival AMD. Google has partnered with Broadcom to create TPU chips, which it uses to train its Gemini models.

According to Citron Research founder and short-seller Andrew Left, Amazon has shown with this letter that it is the one that poses the most serious threat to Nvidia's dominance of the chip market. Years ago, Left called Nvidia one of the main contenders for AI market leadership, Business Insider recalls, and now he agrees with Jassy that a transformation is brewing in the AI chip market. In a post on social network X published by Citron Research, Left called Jassy's letter "a watershed moment."

Left set a $300 target price on Amazon shares, which is about 30% higher than the closing price on April 9. The company's securities have risen 35% over the past year. "This has been one of my key assets for many years," he wrote about Amazon stock.

Amazon's market capitalization already exceeds $2 trillion, but according to Left, further expanding AWS with its own chips will give the company a unique advantage in the technology sector. "There's another $1 trillion company hidden inside Amazon," Left argues. - And no Wall Street analysts are putting that into their Amazon valuation models yet."

Wall Street's consensus target is around $281, which implies a 21% rise in quotes, according to MarketWatch data.

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