Amazon's Cloud Dominance: Why AMZN is the AI Era's Long-Term Winner Over NVDA

In the rapidly evolving AI-driven cloud computing landscape, Amazon Web Services (AWS) is emerging as a strategic titan, leveraging its AI chip procurement strategy and margin discipline to position itself as a long-term winner over NVIDIA (NVDA). While NVIDIA dominates GPU sales for AI workloads, AWS's hybrid chip approach—combining custom silicon with agnostic sourcing—threatens to erode NVIDIA's margins while fueling AWS's profitability. Here's why investors should consider AMZN a compelling buy now.

The AWS Revenue Engine: Scaling at 17% YoY Growth

AWS's Q1 2025 revenue of $29.3 billion marks a 17% year-over-year increase, driving an annual revenue run rate surpassing $117 billion. This growth, paired with a 39.5% operating margin (up from 37.6% in 2024), underscores AWS's ability to scale profitably. Unlike NVIDIA, which faces pricing pressure as competitors like AMD and AWS develop cost-effective alternatives, AWS's margin expansion is a direct result of its vertical integration and chip-agnostic strategy.

This comparison highlights AWS's consistent margin outperformance, even as it invests heavily in infrastructure.

AWS's Agnostic Chip Strategy: A Multi-Faceted Advantage

AWS's procurement strategy combines in-house innovation with third-party partnerships to minimize reliance on any single vendor. Key components include:

1. Custom Silicon Leadership:
2. Trainium Chips: AWS's Trainium2 chips offer 30–40% lower costs than NVIDIA's H100 GPUs, with performance gains of up to 50% in pre-training AI models (as seen in Apple's testing). The upcoming Trainium3 promises a fourfold performance boost over its predecessor, targeting large-scale AI training.

3. Inferentia Chips: Optimized for ML inference, these chips power cost-effective AI services like Amazon SageMaker, reducing latency for customers.

4. Strategic Partnerships:

5. AWS continues to offer NVIDIA GPUs (e.g., P5en instances) but pushes customers toward Trainium for cost-sensitive workloads. Meanwhile, collaborations with AMD and Intel ensure flexibility for non-AI compute needs.

6. Vertical Integration Benefits:

7. AWS's “UltraClusters” of 100,000+ Trainium2 chips (e.g., Project Rainier with Anthropic) enable massive scale at lower costs, a model unattainable for pure-play GPU vendors like NVIDIA.

Why NVIDIA's Margins Are at Risk

NVIDIA's dominance hinges on CUDA's ecosystem lock-in, but AWS's Neuron SDK—a rival to CUDA—is gaining traction. While migration from CUDA requires effort, enterprises like Anthropic and Apple are already shifting to Trainium-based systems for cost savings. NVIDIA's pricing power is further challenged by:
- AWS's Aggressive Pricing: AWS slashed prices for GPU instances (up to 45% for On-Demand users) to drive adoption of its ecosystem.
- Competitor Erosion: Google's TPU and AMD's AI chips are also nibbling at NVIDIA's market share, squeezing its pricing flexibility.

Investment Thesis: AMZN as the AI Cloud Leader

AWS's hybrid chip strategy, paired with its $117B+ revenue run rate, positions it as the AI era's ultimate beneficiary. Key takeaways for investors:
1. Margin Expansion: AWS's operating margin could hit 40–45% in the next two years as Trainium adoption scales, outpacing NVIDIA's likely margin contraction.
2. Cash Flow Reinvestment: AWS's $25.9B trailing free cash flow (despite a dip from 2024) funds growth in AI infrastructure, ensuring it stays ahead of rivals.
3. Long-Term AI Demand: The $100+ billion AI chip market is AWS's to lose. Its cloud-as-a-platform model captures recurring revenue from training and inference, unlike NVIDIA's hardware sales.

This comparison shows AWS's cash flow resilience amid capex investments.

Risk Factors to Monitor

• CUDA Ecosystem Stickiness: Migrating complex workloads from CUDA remains a hurdle.
• Regulatory Scrutiny: Antitrust investigations (e.g., FTC's probe into Microsoft's OpenAI ties) could affect cloud providers.

Investment Recommendation

Amazon's stock trades at a P/E ratio of 35x (vs. NVIDIA's 42x), offering better value for its margin resilience and AI-driven growth. Buy AMZN for a portfolio allocation in the AI cloud race, with a 12–18 month price target of $180–$200 (up from its current $155). NVIDIA's stock, meanwhile, faces near-term headwinds as AWS and peers commoditize GPU-based AI.

In the AI era, the race isn't just about chips—it's about owning the cloud ecosystem that runs them. AWS, with its cost leadership and vertical integration, is winning decisively.

This chart underscores AWS's outperformance during AI's rise.

Final Take: AWS's strategic moves in AI chips and cloud infrastructure make AMZN a buy for investors betting on the next decade of tech. NVIDIA's legacy advantages are fading fast—AWS is the clear leader here.