Amazon's $20 Billion Chip Business Emerges as a New Growth Pillar

Amazon reveals its custom chip business is a $20B+ revenue juggernaut, invests $200B in AI, and expands into GLP-1 drug delivery, challenging Nvidia and pharmacy chains.

Amazon's long-secretive approach to its semiconductor business is over. In a strategic shift detailed by CEO Andy Jassy, the company revealed its custom chip division—comprising the Graviton, Trainium, and Nitro series—now generates an annualized revenue run rate exceeding $20 billion and is growing at a triple-digit percentage pace. This disclosure positions Amazon as a formidable hardware competitor, with plans to sell complete server racks powered by its chips to external customers, a direct challenge to established players like Nvidia.

The move comes as part of a colossal $200 billion capital expenditure plan for this year, a nearly 60 percent increase from the prior year, with the bulk earmarked for expanding AI infrastructure. While these investments pressured free cash flow, shrinking it from $38 billion to $11 billion last year, management points to firm customer commitments. These include a landmark $100 billion commitment from OpenAI, with substantial monetization of this infrastructure wave expected to begin next year and accelerate into 2028.

Simultaneously, Amazon is aggressively expanding its foothold in the lucrative healthcare sector. Its Pharmacy unit has begun offering Eli Lilly's newly approved oral GLP-1 drug, Foundayo, featuring same-day delivery and transparent pricing starting at $1 per day with insurance. This follows the January rollout of Novo Nordisk's oral Wegovy pill in select California locations. The lack of a cold chain requirement for these oral medications makes them ideally suited for Amazon's logistics network, enabling a rapid scale-up. The company aims to expand its same-day delivery service to 4,500 locations by the end of 2026.

The strategy leverages Amazon's integrated assets—Pharmacy, rapid delivery, and One Medical clinics—to control a larger portion of the patient journey, from diagnosis to medication delivery. This poses a direct threat to traditional pharmacy chains like CVS and Walgreens. Through its LillyDirect platform, Foundayo prescriptions are filled at a starting price of $149 per month, with manufacturer coupons applied automatically. Since 2021, customers have saved over $200 million via this coupon system, with GLP-1 drugs representing the largest savings category.

Financially, Amazon's AI services within AWS have reached a $15 billion annualized revenue run rate, accounting for roughly ten percent of the total cloud business. Demand for its proprietary chips outstrips supply, with the current Trainium2 generation largely sold out and advanced reservations already in place for the future Trainium4.

The convergence of these strategic announcements—spanning semiconductors, healthcare, and massive infrastructure investment—fueled a significant market rally. The stock gained 10.56 percent over the week, closing Friday at 202.85 euros. Several analysts promptly revised their outlooks. Cantor Fitzgerald raised its price target to $260 with a Buy rating, BNP Paribas issued a fair value assessment of $320, and William Blair reaffirmed its Outperform rating, adding Amazon to its Conviction List.

Looking ahead, the GLP-1 market is estimated to reach $73 to $87 billion in 2026, with projections soaring to $268 billion by the early 2030s. Investors are now keenly awaiting Amazon's quarterly results on April 30th. The key focus will be whether the explosive growth from AI and healthcare can continue to outpace the substantial margin pressures from the company's historic investment cycle.