Amazon.com, Inc. (NASDAQ:AMZN) is preparing to take its Trainium AI chips beyond Amazon Web Services in late 2027.
However, CEO Andy Jassy says deciding how much computing capacity to sell externally versus keeping it for internal use presents a significant business trade-off.
Amazon Plans Trainium Expansion Beyond AWS
On Thursday, during Amazon’s third-quarter earnings call, Jassy said customer demand for Trainium has been strong, and companies have encouraged Amazon to make the chips available outside its cloud computing platform.
“With Trainium demand so strong, customers continue encouraging us to make it available outside of AWS,” Jassy said. “We intend to do so late in 2027.”
However, the expansion raises questions about how Amazon will allocate its limited chip supply between external customers and its own cloud infrastructure.
Responding to a question about the strategy, Jassy said very few companies run large cloud businesses while also developing advanced chips that can compete in the external market.
He noted that a limited number of suppliers produce advanced chips, and companies receive annual allocations that force them to choose between selling chips and deploying them internally.
Amazon Faces AI Chip Revenue Trade-Off
Jassy explained that selling Trainium chips externally could generate revenue quicker, as Amazon would recognize sales once the chips leave its inventory.
However, keeping the chips within AWS could produce greater cumulative revenue and free cash flow over time through services such as Amazon EC2 and Bedrock.
He said internally deployed chips can generate revenue over five to six years, making the decision more complicated than simply maximizing immediate sales.
“You have to really think through what you want to do,” Jassy said.
Despite the competing priorities, Jassy expects both external chip sales and internal deployment to become significant businesses.
“We believe we’re going to have a very significant business selling chips externally,” he said, adding that Amazon’s ability to develop scalable chips with competitive price-performance could become a major strategic advantage.
He said that advantage could strengthen Amazon’s cost structure while helping it build an entirely separate chip business.
Amazon Misses Q3 Revenue and Earnings Estimates
Amazon reported third-quarter revenue of $201.94 billion, missing analysts’ consensus estimate of $202.31 billion. Earnings came in at $1.89 per share, below expectations of $1.97.
For the fourth quarter, Amazon forecast revenue of $240 billion to $247 billion, compared with analyst estimates of $244.51 billion.
Price Action: Amazon shares fell 4.25% to close Thursday’s regular session at $243.79, then slid another 7.30% to $225.99 in after-hours trading, according to Benzinga Pro.
Benzinga Edge Stock Rankings indicate that AMZN has a weak short-term price trend, while its medium- and long-term trends remain positive. The stock also carries a moderate value score.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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