Amazon Eyes Third-Party AI Chip Market, Challenging Nvidia's Dominance

Amazon is preparing to leverage its internal AI chip success by potentially opening its hardware business to third-party buyers. CEO Andy Jassy indicated in a recent shareholder letter that the demand for Amazon's proprietary silicon has reached a scale where selling racks of chips externally is a viable future step, suggesting the business will be larger than market expectations. This move builds on the success of Amazon Web Services (AWS), which currently serves as the primary vehicle for the company's AI ambitions. AWS has already achieved an annual revenue run rate of $142 billion, with the cloud unit contributing nearly 60% of Amazon's total operating income in the latest full year. The company's in-house chip efforts, specifically the Trainium2 and Trainium3 series, have seen explosive growth. The internal chip business currently maintains an annual revenue run rate exceeding $20 billion. Jassy estimated that if these chips were available to the broader market, the run rate could potentially climb to $50 billion. A transition to a stand-alone chip business would place Amazon in direct competition with Nvidia. While Amazon currently offers Nvidia chips through AWS to its customers, the shift toward selling its own hardware to third parties suggests a desire to capture more of the AI value chain and reduce reliance on external suppliers.