Amazon Is Expanding Its AI Chip Ambitions. Should Nvidia Investors Be Worried?

Amazon (NASDAQ: AMZN) is a leading artificial intelligence company that incorporates AI into its vast e-commerce and advertising platforms, as well as being the world's largest cloud computing company. However, it is now taking a key step in expanding its AI empire by rolling out a new AI chip that could significantly challenge the dominant position held by chipmaker Nvidia (NASDAQ: NVDA).

Amazon's Trainium3 chip is the latest movement in the company's efforts to scale up its custom AI hardware offerings. The company unveiled the chip Dec. 2 at its annual re:Invent conference in Las Vegas.

Image source: Amazon.

"Trainium already represents a multibillion-dollar business today and continues to grow really rapidly," Amazon Web Services CEO Matt Garman said.

Should Nvidia investors be worried about Amazon's latest offering?

Amazon has compelling reasons to develop its own chips -- Nvidia's powerful graphics processing units (GPUs) are state-of-the-art, handling both the training and inference of the most advanced AI applications. But they're also extremely expensive. The Blackwell chips are reportedly priced between $30,000 and $40,000 each, and companies must cluster thousands of them in data centers to run AI programs.

The Trainium3 chips can handle some AI tasks at lower prices. Dave Brown, a vice president at Amazon Web Services, told Yahoo! Finance that developers can save 30% to 40% by using Amazon chips instead of Nvidia's.

And of course, the more work that Amazon does with its in-house chips, the less money it will need to spend with Nvidia. Amazon accounts for 7.5% of Nvidia's revenue, Bloomberg reports.

Will this hurt Nvidia?

On its own, probably not. Amazon won't completely stop buying Nvidia products, and Nvidia has no shortage of customers that it can replace Amazon with, if needed. Nvidia CEO Jensen Huang has said that the company sold out of cloud GPUs and that its Blackwell sales are "off the charts." Revenue in the company's fiscal third quarter of 2026 (ending Oct. 26, 2025) was $57 billion, up 62% from a year ago. The company also reported data center revenue of $51.2 billion, representing a 66% increase from the same period in the previous year.

Nvidia's guidance calls for revenue this fiscal year of $212.8 billion, followed by fiscal 2027 revenue of $316 billion as it begins selling its next-generation Rubin architecture.

The company recently announced a deal with OpenAI, the maker of ChatGPT, for 10 gigawatts of computing power, and has also recently secured deals with Anthropic, Intel, Palantir Technologies, Alphabet, Microsoft, Oracle, and xAI.

But the market's response to Amazon's new chip is worth watching -- especially in the wake of Meta Platforms' reported negotiations to buy data center chips from Alphabet's Google. It was only a matter of time before Nvidia started facing growing competition from some of its biggest customers, and it will be up to Huang's leadership team to prove to customers that its GPUs are worth the premium price.

Patrick Sanders has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Intel, Meta Platforms, Microsoft, Nvidia, Oracle, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.