Amazon Tests AI Chips in Texas Lab, Aims to Cut Nvidia Costs

Amazon.com Inc AMZN is making significant strides in artificial intelligence with its homegrown AI chips.

In its Austin, Texas, chip lab, Amazon engineers are rigorously testing a new server design that features these AI chips, aiming to reduce reliance on Nvidia Corp’s NVDA costly chips, Reuters reports.

Amazon’s efforts align with similar initiatives by rivals Microsoft Corp MSFT and Google parent Alphabet Inc GOOG GOOGL.

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Rami Sinno, director of engineering for Amazon’s Annapurna Labs, highlighted the growing customer demand for more affordable alternatives to Nvidia. Annapurna Labs, acquired by Amazon in 2015, is integral to this development.

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Amazon has been developing its Graviton chips, which perform non-AI computing tasks, for nearly a decade. The latest AI chips, Trainium and Inferentia, offer significant cost savings.

“The offering of up to 40%, 50% in some cases of improved price and performance means it should be half as expensive as running that same model with Nvidia,” said David Brown, Vice President of Compute and Networking at AWS, according to Reuters.

Sales at AWS, which accounts for almost 20% of Amazon’s total revenue, grew by 17% to $25 billion in the January-March quarter compared to the previous year. AWS holds approximately one-third of the cloud computing market, with Microsoft’s Azure at about 25%.

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Analysts view Nvidia as the primary beneficiary in the AI sector. Mizuho Securities reports that Nvidia controls 70% to 95% of the market share for artificial intelligence accelerators.

The Big Tech trio—Google, Microsoft, and Amazon—along with Oracle Corp ORCL—contribute more than 40% of Nvidia’s revenue.

Amazon stock gained over 40% in the last 12 months, reaching a market cap of $1.87 trillion. Nvidia stock surged over 147% in the last 12 months and currently has a market cap of $2.76 trillion. Investors can gain exposure to the stocks through SPDR S&P 500 SPY and iShares Core S&P 500 ETF IVV.

Price Action: AMZN shares traded higher by 1.47% at $182.50 premarket at the last check on Friday Morning.

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