Amazon's AWS AI Chips Drive Profit Growth
Why it matters: AWS's custom AI chips grew at a triple-digit rate, driving 50% of Amazon's Q4 operating profits.
- Amazon Web Services (AWS) is highlighted as the primary reason to invest in Amazon, despite accounting for only 17% of total sales in Q4.
- AWS generated 50% of Amazon's operating profits in Q4 and 66% in Q3, demonstrating its disproportionate contribution to the company's profitability.
- Amazon's custom AI chips, Trainium and Graviton, are experiencing triple-digit growth, making them a more attractive and potentially cheaper option for AI model training and operation compared to GPUs.
- New generations of these custom chips have much of their computing capacity already reserved, ensuring sustained strong growth for AWS and overall profit growth for Amazon in the coming years.
- TSMC's Q1 revenue surge of 35% (per TipRanks via Google News Business) provides a broader industry context for the strong demand in the chip manufacturing sector, which could indirectly benefit Amazon's custom chip strategy.
Amazon's cloud computing division, AWS, is quietly driving significant profit growth for the company, largely due to its custom AI chips, Trainium and Graviton, which saw triple-digit growth last quarter. While Amazon's online store growth is in the high single digits, AWS revenue accelerated to 24% year-over-year, contributing 50% of Amazon's operating profits in Q4, positioning Amazon as a potential AI computing powerhouse despite being overlooked in the AI space.
