I keep hitting the buy button on Amazon (NASDAQ:AMZN | AMZN Price Prediction) for one reason most headlines still miss: the company has quietly built one of the three largest data center chip businesses on the planet, and the market is still pricing it like a retailer with a cloud attached.
That is the confession. Every time the stock drifts, I add. I keep buying because Andy Jassy said out loud on the last call that “our custom silicon business is now one of the top three data center chip businesses in the world” and the stock barely blinked.
The Silicon Case in Three Numbers
Start with scale. The Trainium, Graviton, and Nitro chip business is running at a $20 billion annual run rate, growing triple-digit percentages year over year. Jassy noted that if it were sold externally like a traditional chip vendor, the equivalent run rate would be $50 billion. That is a top-tier semiconductor franchise hiding inside the AWS P&L.
Second, the customer book. Amazon has over $225 billion in revenue commitments for Trainium from multiyear deals with Anthropic, OpenAI, Uber, and others. AWS backlog on top of that is $364 billion, and that figure excludes the newer $100 billion Anthropic expansion. Backlogs of that size do not evaporate in a soft quarter.
Third, the economics. Trainium2 delivers about 30% better price performance than comparable GPUs and is largely sold out. Trainium3 is 30% to 40% more price performant than Trainium2 and is nearly fully subscribed. Jassy told investors Trainium will “save us tens of billions of dollars of CapEx each year and provide several hundred basis points of operating margin advantage”. AWS already earns a 37.7% operating margin on 28% year over year growth, the fastest pace in 15 quarters.
Why This One, Not the Obvious Alternative
The reflex trade for AI infrastructure is NVIDIA (NASDAQ:NVDA), and I still own it. But Amazon is the company charging a 30% premium against NVIDIA silicon on its own cloud while continuing to buy NVIDIA chips too. That is the vendor and the competitor, and it pays either way.
The cloud reflex is Microsoft (NASDAQ:MSFT) or Alphabet (NASDAQ:GOOGL). Fine businesses. Neither is disclosing a $20 billion in-house chip run rate growing triple digits, and Amazon trades at a forward P/E of 29 with a PEG of 1.413, which does not feel expensive for a business compounding AWS at that rate.
The Real Risk
The capex is the risk, full stop. Q1 alone burned $44.203 billion in cash capex, long-term debt climbed to $119.1 billion from $65.6 billion, and free cash flow TTM declined 95% to $1.2 billion. If Trainium adoption stalls, that math gets ugly. What keeps me buying is that prediction markets place a 98.4% probability capex clears $170 billion in 2026, and the $225 billion Trainium book is contracted revenue backing the spend, not hope. If you are still building an income-focused retirement stack around this kind of compounder, the framework in Never Touch the Principal is worth a look.
Forward Conviction
Analyst consensus sits at $312.91 against a current $247.49, with 62 buy or strong-buy ratings and zero sells. I am buying the fact that Amazon is turning its own capex into its own supply chain, and every Trainium rack shipped is a dollar not sent to a competitor. I keep the buy button warm.
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