This Could Be Nvidia’s Biggest Challenger in the AI Chip Market. Hint: It’s Not AMD

Nvidia (NASDAQ:NVDA) built an artificial intelligence (AI) empire, starting with graphics processing units (GPUs), the key chips powering tasks like model training, and expanding into entire systems and related products and services. All of this has resulted in surging revenue over the past few years, reaching a quarterly high of $96 billion in the recent period.

The company is the clear GPU leader worldwide, but competition is growing. This is as other chip designers improve the speed and performance of their offerings, and even as other tech giants enter the chip space. Which of these players may represent the biggest threat? It isn't necessarily fellow chip specialist Advanced Micro Devices. Instead, it could be the following tech powerhouse that's already scoring multiple AI victories. Let's check out this key Nvidia challenger...

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Amazon's victories in AI

This company actually works closely with Nvidia and is even a customer of the chip leader. I'm talking about Amazon (NASDAQ:AMZN), an e-commerce giant and the world's biggest cloud services provider. Amazon has been winning in AI as it applies the technology to its e-commerce business, gaining in efficiency and cutting costs, and as it offers AI products and services to its cloud customers.

Here, I'll focus on the cloud unit, Amazon Web Services (AWS). Customers flock to AWS for chips and systems to power their AI workloads. For example, at AWS, they can find Nvidia's top GPUs and platforms. Amazon chief Andy Jassy even said during the recent earnings call: "We'll continue making AWS the best place to run Nvidia chips."

At the same time, however, Amazon is becoming a chip rival. The company, in recent years, developed its own chips, from Graviton central processing units (CPUs) to Trainium AI accelerators, which compete with the GPU. For reference, a CPU is the main chip used in all computers -- and it's the key chip driving agentic AI.

Amazon differentiates itself by creating quality chips that it can offer for reasonable prices, appealing to the cost-conscious customer. This strategy has worked, prompting enormous demand and revenue growth. Jassy, in his letter to shareholders earlier in the year, even spoke of the possibility of creating a stand-alone chip business in the future.

Amazon's Graviton and Trainium chips deliver triple-digit growth

In the recent earnings report, the company said its custom chips annual revenue run rate had reached $25 billion, with Graviton and Trainium delivering triple-digit growth. Nvidia is launching its first stand-alone CPU this fall as agentic AI is seen as the next AI growth driver. It will compete against the already popular Graviton, which Amazon says offers at least 30% better price performance than other CPUs.

Meanwhile, as Amazon has said, the number of options in the AI chip market could drive the cost of AI inference down -- this may be bad news for Nvidia, as it sells a premium product. Amazon, with a focus on value, could benefit as customers look for lower-priced options.

Does this mean Nvidia and its shareholders should worry about this next big challenger? Not necessarily. Amazon says that, today, demand for its chips is flying high, and yet this hasn't disrupted Nvidia's revenue growth momentum. At the same time, what we are seeing now suggests that high demand for AI chips and systems is likely to continue. This means that, even as Amazon sees explosive growth in chip revenue, Nvidia is likely to maintain its leadership and also experience strong growth.

There are two reasons behind this. First, demand is so high that more than one player is needed to fulfill it, and the actual use of AI in the real world should keep this trend going. Second, Nvidia chips and Amazon chips aren't interchangeable. Customers may choose Nvidia for certain workloads as they seek the highest performance available, and for other projects, they might use Amazon chips. Both of these companies are winning today, and that could continue.

So, while Amazon could be Nvidia's biggest challenger thanks to its expansion into a broad range of chips and success there, this doesn't mean Nvidia will lose its top position in the AI market.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool has a disclosure policy.