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Amazon (AMZN) to Release New Server Chip: Will it Hurt Intel?

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Amazon.com Inc.’s AMZN cloud unit, Amazon Web Services (“AWS”) has disclosed that it plans to release a more powerful version of its own server chips, giving a fresh challenge to Intel INTC.

Reportedly, Amazon’s next generation chip, Graviton2, built on microprocessor giant ARM Holdings’ designs, is a custom chip design with a 7nm architecture. It is based on 64-bit ARM Neoverse cores.

The new version of chips will power services for cloud-computing customers and some of AWS’ own programs.

The latest move will definitely help Amazon to better compete with Intel, which serves the high-end server market.

Amazon.com, Inc. Price and Consensus

 

Amazon.com, Inc. Price and Consensus

Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote

Is the Move a Threat to Intel?

Last year, Amazon had tested the waters in the chipmaking business with its internally-developed processor named Graviton based on the ARM architecture. The company had stated that it would support new versions of its main EC2 cloud-computing service.

It didn’t stop there.

Now, it has come up with a modified version, trying to again challenge Intel’s hold in the server chip market. The news has not gone down well with Intel’s shareholders. This is evident from its share price, which was down 2.76% following the news.

We believe that Amazon could move deeper into the chip market over the long term, posing further threat to Intel. This is because Amazon has an ever-increasing presence in the cloud computing market. Although it uses custom chips made by Intel, the new chips based on ARM’s chip designs can help it move away from Intel's products in the future.

However, we believe that Amazon must tread cautiously, as it has “Intel- Inside”. The overwhelming majority of AWS workloads is still powered by Intel’s CPUs.

Competition Intensifies in the Server Market

Intel is definitely the leader in the server chip market, accounting for more than 90% of the market. Most of the big cloud providers including Amazon, Microsoft Corp. MSFT and Alphabet Inc.’s GOOGL Google use chips made by Intel.

However, we can now expect to witness a slight change in the scenario, as many companies are coming up with announcements to use chips made by Intel’s main rival Advanced Micro Devices. 

Moreover, big software companies are now no more just sticking to software but are building their own computer chips. Google’s efforts to create its own chips to power artificial intelligence algorithms running in its data centers can’t be ignored. It also rents out the same to cloud customers.

Likewise, Apple has built every iPhone model since 2010 around a processor designed in-house. Microsoft had also tested the idea in partnership with mobile chipmaker Qualcomm.

All the biggies are definitely getting serious about the development of server hardware. However, only time will tell whether Intel will be able to maintain its dominance or not.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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