Amazon in Talks to Sell Custom AI Chips to External Customers, Challenging Nvidia

Amazon is in early talks to sell its custom Trainium AI chips to external companies, a move aimed at challenging Nvidia's market dominance. CEO Andy Jassy estimates a potential $50 billion annual run rate for the business. However, the plan faces hurdles, including extreme demand that has already sold out capacity for current and future chips, and the challenge of securing manufacturing from partners like TSMC, where Nvidia is the top customer.

AWS Trainium chip sales talks

• ▪The potential sale stems from an idea floated by Amazon CEO Andy Jassy in his annual shareholder letter in early April.
• ▪The talks to sell the chips are in the early stages, according to Amazon.
• ▪Amazon.com Inc. is in talks to sell its custom-made artificial intelligence chips, Trainium, for use in other companies’ data centers.
• ▪Peter DeSantis, Amazon's AI chief, confirmed the discussions are happening but declined to name potential customers.
• ▪AWS spokesperson Doron Aronson confirmed that while AWS has historically declined requests, it may sell racks of chips to third parties in the future.

Competitive threat to Nvidia

• ▪The move is a key part of Amazon's strategy to challenge Nvidia Corp.'s dominance in the AI chip market.
• ▪Nvidia CEO Jensen Huang recently identified a new $200 billion market for the company in selling CPUs for AI, expanding into Intel and AMD's territory.
• ▪Amazon CEO Andy Jassy estimated that if the company's chip business were standalone, its annual run rate would be approximately $50 billion.
• ▪A $50 billion competitor would be comparable to Intel's annual revenues but smaller than Nvidia's current $326 billion revenue run rate.

AWS chip capacity constraints

• ▪Amazon CEO Andy Jassy stated in April that the capacity for the current Trainium chip sold out almost instantly.
• ▪Capacity for the next-generation chip, Trainium4, has also sold out, despite not being available for over a year.
• ▪AWS has previously resisted selling its chips directly to profit from a "waterfall effect" of selling associated cloud services like storage and security.

Manufacturing partnership challenges

• ▪At TSMC, Amazon would have to compete for capacity with Nvidia, which recently became the foundry's largest customer, surpassing Apple.
• ▪To sell chips externally, Amazon would need to manufacture a surplus through partners like TSMC.

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