Amazon Just Announced New Innovations to Take On Snowflake, Nvidia, and More

Every November, Amazon (AMZN -1.08%) holds its Re:Invent conference. where it unveils new innovations under Amazon Web Services.

AWS is the first mover in cloud computing, a juggernaut that is possibly Amazon’s most valuable segment, and with enormous resources to continue to innovate. At this year’s Re:Invent, Amazon unveiled some eye-catching high-end products and services that are built entirely in-house, perhaps making its current third-party hardware and software vendors nervous.

Vertical integration of more internal software and hardware on AWS is similar to Amazon releasing private label products to compete with high-end brands on its retail platform. However, given AWS’s ability to tightly integrate software and semiconductors with its underlying infrastructure, vertical integration could end up being even more effective.

New internal chips to create high-performance computing

One of the ways Amazon can reduce costs for customers is by running workloads on their internal processors. Amazon bought Annapurna Labs in 2015 to develop its own ARM-based semiconductor designs, and AWS has built up its chip capabilities since then.

Initially, Amazon used internal processors to perform simple tasks at low cost; however, in recent years, Amazon’s in-house processors have become more advanced. This year, AWS unveiled its latest Graviton 3E chips, which now have the ability to run high-performance computing in the most advanced workloads, such as weather forecasting and drug discovery. That is usually the arena of Advanced micro devices (AMD -0.19%) in the Intel (INTC -0.80%).

Additionally, Amazon unveiled its second-generation Inferentia chip, which allows a system to learn from multiple arrays of data, a process in AI called “inference.” That puts Amazon in competition Nvidia (NVDA 1.25%) GPUs, which are currently the gold standard in artificial intelligence processing.

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While it’s hard to compare the new AWS chips to current industry leaders, it seems likely that Amazon’s silicon could be used for workloads for customers who are highly concerned about cost and price performance.

Make no mistake, the current chip leaders are also very advanced, with huge research budgets at their disposal, and should maintain their leadership status for the highest performing workloads. However, if high-performance computing becomes more commoditized as time goes on, it is possible that Amazon will be able to steal market share in highly advanced computing applications.

Cloud animation with ones and zeros coming out of them.

Image source: Getty Images.

New data analytics offering to adopt software leaders like Snowflake

In addition to vertically integrating their server systems with their own chips, AWS also unveiled more vertically integrated cloud software services that take on some of the top data analytics software companies in the world. Examples of new offerings include AWS DataZone, AWS Clean Rooms, and AWS Supply Chain, among a few others.

AWS DataZone is a service that allows customers to connect their data from AWS, on-premises data centers and other third-party data sources more seamlessly than current solutions. AWS Clean Rooms enables companies to collaborate by analyzing their combined data sets, without revealing private or sensitive underlying data in each set, thereby enabling more data insights through collaboration. And AWS Supply Chain is a new software platform that analyzes data from a multitude of supply chain systems to enable real-time insights and collaboration across a company’s entire supply chain to better understand the current state of supply and balance it with changing customer demand.

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The new DataZone services appear to compete with software juggernauts like Amazon Salesforce (CRM -8.27%), with its Tableau and Mulesoft services. Amazon Clean Rooms appears to be taking over snowflake (Snow 7.80%) and its Snowflake Data Exchange service. And AWS Supply Chain takes dead aim at enterprise resource planning juggernauts like SAP and (SAP 1.03%).

Vertical integration brings many benefits to AWS and its customers

Can these new competitive services dissuade the world’s largest software companies and chipmakers from working with AWS? Probably, but the fact that AWS is the leading cloud infrastructure platform means that these companies cannot afford to boycott Amazon. AWS has a leading 33% share of the global cloud infrastructure market, according to Statista, and even more if you exclude Chinese providers in their closed market.

For AWS customers, they benefit from more choice. Third-party hardware and software companies remain attractive for their focused R&D efforts and ability to work across multiple clouds. However, the more internal services Amazon can provide, the more attractive AWS becomes, as it provides optionality and bargaining power for AWS customers with these other vendors.

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Amazon won’t suddenly dominate the hardware or software space, but its vertical integration efforts will certainly give investors in top tech stocks like AMD or Snowflake something to think about. After all, Apple (AAPL 0.19%) could completely cut out the once-dominant Intel processors for Macs, and it’s working to fully replace them Qualcomm (QCOM 0.25%) Chips for the iPhone until next year with their own internal designs.

Amazon will probably never cut out its software and hardware partners because it wants to offer choice and selection while the iPhone is just a single device. Still, the overall addressable market for leading semiconductor and software companies in advanced computing and data analytics, the forays of AWS, and perhaps other vertically integrated clouds for that matter, is certainly something to consider in the long term.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the Motley Fool’s board of directors. Billy Duberstein has positions in Amazon and Apple and has the following options: short January 2023 $210 calls on Apple. Its clients can own shares of the mentioned companies. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Intel, Nvidia, Qualcomm, Salesforce, Inc., and Snowflake Inc. , long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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