Amazon Just Delivered Great News for This Top AI Stock

Core Insights - Amazon's custom chips, Graviton and Trainium, are experiencing rapid growth, achieving a run rate of over $10 billion in annual revenue, doubling year-over-year, and potentially worth $100 billion as a standalone business [2] - The success of Graviton is beneficial not only for Amazon but also for Arm Holdings, which designs the CPUs used in Graviton, generating over $1 billion in revenue per quarter [3][6] - Graviton offers over 40% better price performance per instance compared to x86 processors, which may lead to increased spending on Arm CPUs for cloud services [5][7] Amazon's Growth and Strategy - Amazon is significantly increasing its EC2 core computing capacity daily, with a majority utilizing Graviton chips [5] - The company's plans to invest $200 billion in capital expenditures have raised concerns among investors, impacting stock performance [1] Arm Holdings' Position - Arm's data center royalty revenue has doubled in the most recent quarter, with expectations that it could surpass smartphone revenue in the next three years [7] - The growth of AI agents is expected to drive demand for more CPUs, benefiting Arm's royalty collections [9] - New versions of Graviton, such as Graviton 5, are utilizing advanced Arm designs, which command higher royalty rates [9] Market Implications - As demand for Graviton and related cloud AI chips increases, Arm is positioned to be a significant beneficiary in the ongoing AI boom [10]