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Amazon launched an upgraded line of AI chips, putting the company squarely in competition with Nvidia.

I’ve gotten plenty of emails about the topic.

What does this mean for Nvidia?

What does this mean for Amazon? 

What does this mean for the Mission? 

Today, I’m dissecting the news and what it means for our money.

Last week, Amazon’s (AMZN) cloud computing arm, Amazon Web Services, announced plans for an “Ultracluster,” a massive AI supercomputer made up of hundreds of thousands of its own Trainium chips.

The Ultracluster supercomputer is designed to deliver up to 30-40% better price-performance compared to Nvidia GPUs.

The announcement highlights Amazon’s commitment to Trainium, the in-house-designed chips the company is positioning as a viable alternative to Nvidia (NVDA) products.

Amazon’s stock is up 9.0% since the announcement. Nvidia is flat.

What does this mean for Nvidia (NVDA)?

Amazon's supercomputer announcement clearly represents a challenge to Nvidia's dominance in the AI hardware market.

However, there are some important points to consider:

• Amazon's latest Trainium chip competes primarily with Nvidia's H100, which was first released in mid-2022, putting Amazon years behind Nvidia’s technical milestones. The Blackwell is Nvidia’s newest chip that CEO Jensen Huang recently described as having “insane” demand.

• Amazon’s Trainium chips are designed exclusively for Amazon Web Services and depend on AWS-specific infrastructure and software stack, which limits its broader applicability.

• Amazon itself is still very much reliant on Nvidia GPUs. The company is expected to spend tens of billions of dollars in 2024 on Nvidia products and even more in 2025.

• Amazon itself has even downplayed their competitive threat to Nvidia:

AWS CEO Matt Garman said: “I actually think most will probably be Nvidia for a long time, because they’re 99% of the workloads today, and so that’s probably not going to change. But, hopefully, Trainium can carve out a good niche where I actually think it’s going to be a great option for many workloads – not all workloads.”

Whenever a seemingly big announcement like this is made, I check on the EPS Trend on Yahoo! Finance.

It’s important to note Nvidia’s EPS for next year has actually been revised higher since this announcement, signaling this isn’t an immediate threat to their business.

What does this mean for Amazon (AMZN)?

This announcement is more of a positive for Amazon than it is a negative for Nvidia.

• Amazon will be able to increase margins and better serve their AWS customers.

• Owning the design and production of AI chips gives Amazon more control, allowing for tailored improvements and service offerings compared to competitors Google Cloud and Microsoft Azure.

• By developing its chips, Amazon potentially bypasses the supply constraints from external chip providers like Nvidia. These supply constraints have been one of the largest hindrances to faster growth for Nvidia.

It’s also important to note that companies in higher growth industries typically trade at higher multiples.

Stocks in the AI chip industry – being one of the highest growth industries in the world – trade at higher multiples than slower growth industries like airlines or auto manufacturers.

Amazon, after demonstrating they’ve got a viable chip product, should be rewarded with a higher multiple, thereby increasing its stock price.

What does this mean for the Mission?

While the “Nvidia Killer” headlines certainly get eyeballs, a deeper dive reveals Amazon’s newest supercomputer isn’t an immediate threat.

Amazon, however, should be a stock on our radar.

Apart from the Trainium news, the company also recently reported arguably the best earnings of all Magnificent 7 companies – driven by growth in its cloud computing and advertising businesses.

This is a stock I recommend buying here, and one I’ll look to trade towards $1 million on a meaningful pullback.

Right alongside Nvidia.