Is Amazon the Most Underrated Chip Stock on the Market?

Investors know Amazon (NASDAQ:AMZN | AMZN Price Prediction) for its dominance in e-commerce and cloud computing through AWS, and are likely familiar that it has pushed into chipmaking with its Trainium line that is designed for AI training and inference. Yet, their thoughts on its silicon efforts often don’t go much beyond that and, in doing so, overlook the deeper significance it holds. 

This oversight could be costly, as Amazon’s custom chips represent a rapidly expanding area. While it won’t rival Nvidia (NASDAQ:NVDA) in market control, the segment’s growth merits more focus, because the minimal emphasis investors place on Amazon’s chips positions it as perhaps the most underrated player in semiconductors today.

AWS Chips Gain Significant Traction

In its fourth-quarter earnings release earlier this month, Amazon highlighted the strong progress being made in its AWS custom chip operations. The company stated that its chips business is “gaining significant momentum,” with Trainium and Graviton achieving a combined annual revenue run rate exceeding $10 billion, reflecting triple-digit year-over-year growth rates. 

CEO Andy Jassy noted, “our chips business growing triple digit percentages year-over-year — this growth is happening because we’re continuing to innovate at a rapid rate, and identify and knock down customer problems.” Overall, AWS segment sales rose 24% to $35.6 billion in Q4 and 20% to $128.7 billion for the full year.

The Trainium series has seen notable adoption. Trainium 2, for example, is fully subscribed, with 1.4 million chips deployed. It powers most inference on Bedrock, used by over 100,000 companies, and supports Project Rainier, the world’s largest operational AI compute cluster with over 500,000 chips. This cluster aids Anthropic in training its Claude model. 

Trainium 3 handles production workloads with high demand, and nearly all of its supply is expected to be committed by mid-2026. Trainium 4 — set for 2027 delivery — offers six times the FP4 compute performance, four times more memory bandwidth, and twice the high memory bandwidth capacity than Trainium 3.

Further, Graviton 5 stands out as AWS’s most advanced CPU for cloud workloads. Over 90% of the top 1,000 AWS customers have adopted it. It delivers up to 40% better price-performance than leading x86 processors, enabling faster applications, cost reductions, and improved sustainability.

The Significance of the Business

Although this $10 billion run rate marks excellent expansion, investors might dismiss it as minor — a rounding error — as it equates to about 1.4% of Amazon’s total $716.9 billion in 2025 net sales. That achievement allowed Amazon to become the largest company by sales, surpassing Walmart (NYSE:WMT), which just reported $713.2 billion in revenue for its fiscal year.

Yet this view understates the segment’s trajectory as it may not be long before Amazon’s chip-related revenue approaches or exceeds that of Advanced Micro Devices (NASDAQ:AMD).

AMD also reported Q4 results recently, with full-year data center revenue reaching $16.6 billion, a 32% increase from 2024, on the strength of its EPYC CPUs and Instinct GPUs. This means Amazon’s $10 billion run rate represents roughly 60% of AMD’s data center revenue and is growing at least three times faster.

Still, several key distinctions apply here. AMD sells its chips to any buyer, generating direct hardware revenue. Amazon’s $10 billion, on the other hand, reflects annualized revenue from AWS services using these custom chips, not outright sales. It captures usage fees from customers running workloads on instances with Trainium or Graviton, making this something of an apples-to-oranges comparison. Even so, Amazon is benefiting from captive demand within its ecosystem, with any cost savings from in-house chips boosting margins directly, while AMD competes aggressively for each new data center contract.

Key Takeaway

Make no mistake: AMD is a strong semiconductor stock worth considering for your portfolio and is a potent challenger to Nvidia and even Intel (NASDAQ:INTC) in data center CPUs. However, when searching for investments beyond the industry’s headline names, investors should include Amazon in their deliberations as its custom silicon drives AWS expansion, underscoring its position as perhaps the most underrated stock in the sector.