Could Amazon Beat Nvidia at Its Own Game?

Nvidia (NVDA 4.57%) has become pretty much synonymous with artificial intelligence (AI) these days. The tech giant dominates the AI chip market, holding about 80% share, thanks to the strength of its graphics processing units (GPUs). These chips power some of the most important AI tasks, such as the training and inferencing of large language models (LLMs). The LLMs then are able to drive a wide range of AI programs, opening the door to the development of game-changing products and services.

Though Nvidia is the market leader, it isn’t the only chip designer on the block. In fact, Amazon (AMZN -1.21%), a company known for its ability to expand across a wide range of areas — from e-commerce to healthcare and cloud computing — also is playing a key role in the AI boom. Could this innovator eventually beat Nvidia at its own game and become a chip market leader? Let’s find out.

Image source: Getty Images.

Amazon’s biggest profit driver

You may know Amazon best for its e-commerce business, since it’s the service most of us interact with on a regular basis — as we order everything from food to general merchandise. But Amazon’s biggest profit driver actually is Amazon Web Services (AWS), its cloud computing business. AWS is the world’s biggest cloud provider and continues to expand and innovate.

Today, AWS is heavily focused on AI and aims to serve customers’ every AI need, offering them chips and a fully managed LLM service called Amazon Bedrock, as well as a variety of AI apps. The area of chips is where Amazon is moving in on Nvidia’s territory, creating the Trainium and Inferentia chips specifically made for training and inference.

These chips are less expensive than those of Nvidia and other rivals, and due to this, demand “is quite high,” Amazon said in a recent earnings call. The company isn’t new to creating lower-priced chips, having already done so in the world of central processing units (CPUs) — these are the main processors in any given computer. AWS’ Graviton CPU served the company particularly well in recent times of higher inflation — customers with strained budgets favored Graviton over more expensive options and stuck with AWS.

Now, AWS says it will launch greater quantities of Trainium 2 later this year and into next. This AI chip’s training performance is four times faster and memory capacity is three times larger than the first-generation Trainium.

AWS’ $100 billion run rate

All this is working out nicely for Amazon, with AWS this year reaching a $100 billion annual revenue run rate thanks to all of its AI products and services. So yes, Amazon is pouring investment into AI, but it’s also showing it can monetize this move.

At the same time, Amazon offers customers a wide variety of products and services — including those from Nvidia. In fact, Amazon says it has the “broadest selection” around of Nvidia server resources, making it easy for AWS customers to choose Nvidia.

Let’s get back to our question: Could Amazon, an Nvidia partner, actually beat Nvidia at the AI chip game? I don’t think either company has to worry about losing business due to the other. Yes, Amazon could attract customers aiming to limit costs as they launch AI projects or customers with projects that may not require the power and speed of an Nvidia GPU.

Aiming to win the AI race

However, a vast number of companies aiming to win in the AI race, as well as those launching extensive AI platforms, likely will continue choosing Nvidia or other premium chips. The need for quality AI chips is strong enough for more than one player to be successful in the market today and moving forward.

For example, Trainium and Inferentia are contributing to AWS’ revenue growth, and at the same time, Nvidia is seeing demand for its upcoming Blackwell architecture and chip surpass supply. So there’s real evidence that many product offerings could perform well in the AI market.

All of this means Nvidia probably won’t lose out as Amazon continues to strengthen its Trainium and Inferentia offerings — and clearly, Amazon itself will benefit. So, Amazon likely won’t beat Nvidia at its own game, and instead, both players, and their investors, could score a victory over the long term.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.