Amazon CEO Andy Jassy Has Fantastic News for Investors

Amazon (NASDAQ: AMZN) reported its second-quarter results on July 30. The company's update impressed investors. Amazon's net sales grew 20% year over year to $200.6 billion, and the company's earnings per share were $5.75, significantly higher than the $1.68 reported in the year-ago period (although in fairness, Amazon benefited from the positive impact of equity investments).

The tech leader's shares jumped following its quarterly update. But behind the major headlines, several developments should have investors excited about Amazon's future. Let's focus on one thing the company's CEO, Andy Jassy, said and what it means for shareholders.

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A new growth driver in the works

Earlier this year, reports surfaced suggesting that Amazon was in talks to sell its Trainium line of artificial intelligence (AI) chips to other companies. This probably wasn't a surprise to investors who had been paying attention. Andy Jassy had already mentioned several times that its Trainium franchise was in high demand among Amazon Web Services (AWS) customers. And it turns out, this demand isn't slowing down.

In the press release announcing Amazon's second quarter results, Andy Jassy said that the company's AI chip business now boasts a more than $25 billion annual run rate, growing at triple-digit percentages year over year. As of the first quarter, Amazon's AI chip business had a run rate of about $20 billion, so the $25 billion in Q2 represents a 25% quarter-over-quarter increase. There is a large opportunity here for Amazon. Custom AI chips, such as its Trainium franchise, are in increasingly high demand for several reasons.

While Nvidia's (NASDAQ: NVDA) GPUs (Graphics Processing Units) have them beat in peak performance and breadth of capabilities, custom AI Chips can be more competitive on another metric: Price-performance, or how much performance companies get for every dollar they spend. As Amazon has argued, Trainium offers significantly better price-performance than comparable GPUs and can, therefore, help companies reduce expenses and lower their dependence on Nvidia's hardware.

Amazon expects that doubling down on Trainium will lead to meaningful operating margin gains within its cloud computing business versus the alternative of purchasing AI chips from other companies. Some might point out that a $25 billion run rate isn't that impressive for a company that generates over $700 billion in annual revenue. But at the rate it is growing, Amazon's AI chip business could become a meaningful growth driver within a few years if the company decides to sell its chips.

That would be yet another important growth driver. Meanwhile, Amazon's robust financial results, accelerating cloud sales growth, and multiple opportunities ahead across e-commerce and other industries already make the stock attractive. The company's AI chip business is practically a bonus, although a very nice one.

Prosper Junior Bakiny has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.