<p><strong>Amazon</strong> <span class="ticker-mention inline-flex items-center font-bold">(AMZN <span class="ml-1 text-green-900">+3.83%</span>)</span> has a massive business that many investors probably haven't considered. CEO Andy Jassy wrote in his recent letter to shareholders, &#34;Our chips business is on fire, changes the economics for AWS, and will be much larger than most think.&#34;</p>
<p>I suspect this business is already larger than most think. Jassy revealed that Amazon's custom AI chips business is growing at a triple-digit rate and has a $20 billion annual revenue run rate. More strikingly, he claimed that if the unit were a stand-alone business and sold AI chips to AWS and other external customers, its annual revenue run rate would be around $50 billion. </p>
<p>Amazon hasn't previously disclosed details about just how successful its AI chips are. Now that the company has revealed this &#34;hidden&#34; $50 billion business, is it the buy signal investors need?</p>
<div><img alt="A person holding a laptop in front of racks of servers." width="880" height="495" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NjU0MjcvZGF0YS1jZW50ZXItd2l0aC1pdC1zcGVjaWFsaXN0LmpwZyZ3PTM4NDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84NjU0MjcvZGF0YS1jZW50ZXItd2l0aC1pdC1zcGVjaWFsaXN0LmpwZyZ3PTM4NDA"/>
<p>Image source: Getty Images.</p>
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<h2>Challenging Nvidia</h2>
<p><strong>Nvidia</strong> <span class="ticker-mention inline-flex items-center font-bold">(NVDA <span class="ml-1 text-green-900">+3.75%</span>)</span> remains the undisputed heavyweight champion in the AI chip market. However, could that title be in jeopardy? Jassy seems to think so. He noted, &#34;Virtually all AI thus far has been done on Nvidia chips, but a new shift has started.&#34;</p><div><div id="foolcom_sidebar_top_container"></div></div>
<p>Jassy acknowledged that AWS has &#34;a strong partnership&#34; with Nvidia. He said that AWS will continue to support Nvidia's GPUs. But he also argued that &#34;customers want better price-performance.&#34; And that's what Amazon is giving them.</p><div></div>
<p>For example, the company's Trainium2 chips achieved a 30% price-performance improvement over similar GPUs. Trainium3 began shipping earlier this year and has a 30% to 40% higher price-performance than Trainium2. Amazon is still about 18 months away from making its Trainium4 chips widely available. However, Jassy said that &#34;a significant chunk&#34; of the new AI chip has already been reserved. </p><div><div id="in_line_article_pitch_container"></div></div>
<p>The success of these AI chips is clearly great news for AWS. Jassy stated that the Trainium product line will save the cloud services unit &#34;tens of billions of capex dollars per year and provide several hundred basis points of operating margin advantage versus relying on others' chips for inference.&#34; The more cost-effective AWS is, the more customers it will attract and retain.</p>
<p>Will Amazon go head-to-head against Nvidia and market its Trainium chips to external customers? It seems likely, based on Jassy's comments. He wrote in his annual shareholder letter, &#34;There's so much demand for our chips that it's quite possible we'll sell racks of them to third parties in the future.&#34; I predict that Amazon will become one of Nvidia's top competitors over time.</p>
<h2>What about the $200 billion capex that scared investors?</h2>
<p>Amazon's stock floundered in February and March in large part because investors were scared by the company's plan to spend a staggering $200 billion on capital expenditures this year. Most of this total is targeted toward AI infrastructure expansion.</p>
<section><div><div><div><small><div>Expand</div></small></div><div><img alt="Amazon Stock Quote" width="64" height="64" src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL0FNWk4ucG5nJnc9MTI4?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vYXJ0L2NvbXBhbnlsb2dvcy9tYXJrL0FNWk4ucG5nJnc9MTI4"/></div><div><h2>NASDAQ: AMZN</h2><div>Amazon</div></div></div><div><div><div>Today's Change</div><div>(3.83%) $9.19</div><div>Current Price</div><div>$249.08</div></div><div></div></div></div><div><div></div><div><h3>Key Data Points</h3><div><div>Market Cap</div><div>$2.7T</div><div>Day's Range</div><div>$241.78 - $252.18</div><div>52wk Range</div><div>$165.28 - $258.60</div><div>Volume</div><div>3.5M</div><div>Avg Vol</div><div>52M</div><div>Gross Margin</div><div>50.29%</div></div></div></div></section>
<p>Does this massive spending make the good news about the AI chip business that Jassy discussed irrelevant? I don't think so. Neither does Jassy. He compared the overall AI opportunity to a land rush. Jassy explained that his philosophy is, &#34;<span class="boldText"><span class="text v2">When you identify disproportionate inflections, bet big</span></span><span class="text v2">.&#34; AI is one of those inflations.</span></p>
<p>Jassy argued that no technology has experienced a faster rate of adoption than AI. He pointed to AWS' AI-related momentum but said that the unit &#34;could be growing even faster.&#34; The two biggest constraints are power and GPUs. Both require significant funding to address.</p>
<p>Importantly, Jassy stated that Amazon isn't investing such an enormous amount of money in capex this year &#34;on a hunch.&#34; AWS expects to monetize much of its 2026 capex in 2027 and 2028. Jassy noted that the cloud unit already has &#34;customer commitments for a substantial portion&#34; of the planned capital expenditures. </p>
<h2>A buy signal</h2>
<p>Let's return to the original question: Is Amazon's $50 billion AI chip business a buy signal for investors? My answer is a resounding &#34;yes.&#34;</p>
<p>Amazon isn't just an e-commerce stock. It's more than a cloud stock. It appears to be on the verge of becoming a GPU stock. </p>
<p>I liked how Jassy framed the opportunity: &#34;We're not going to be conservative in how we play this--we're investing to be the meaningful leader, and our future business, operating income, and FCF [free cash flow] will be much larger because of it.&#34; I strongly suspect that he's right. And if he is, buying Amazon stock right now should pay off handsomely over the next decade and beyond.</p><div id="article_pitch_container"></div><div id="promobox_container"></div>

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<p>Amazon's CEO Andy Jassy revealed that the company's custom AI chips business is growing rapidly, with a $20 billion annual revenue run rate and a potential $50 billion if sold as a standalone unit. Jassy believes Amazon's chips could challenge Nvidia's dominance in the AI chip market, offering better price-performance. Despite concerns over a $200 billion capex plan, Jassy argues that the investment is strategic for future growth in AI. Overall, the developments in Amazon's AI chip business signal a strong buy opportunity for investors.</p>

- Amazon's custom AI chips business is experiencing rapid growth, with a $20 billion annual revenue run rate and potential sales reaching $50 billion if treated as a standalone entity.  
- CEO Andy Jassy emphasized the competitive advantage of their Trainium chips, which offer significant price-performance improvements over Nvidia's offerings, positioning Amazon as a viable competitor in the AI chip market.  
- The company's substantial $200 billion capital expenditure plan aims to expand AI infrastructure, indicating strong future growth potential and making Amazon stock an appealing investment opportunity.

Amazon Just Revealed a Hidden $50 Billion Business -- Is This the Buy Signal Investors Needed?