Nvidia (NVDA +1.77%) has delivered fantastic news to investors quarter after quarter, and this is thanks to a wise move the company made more than a decade ago. The tech giant shifted its focus to the field of artificial intelligence (AI), with the goal of designing its chips to suit that technology perfectly.
The company has won that bet, as we can see through its revenue, climbing in the double- and triple-digits in recent years and reaching a record of $130 billion in the latest fiscal full year. Profit has also advanced, and Nvidia aims to keep this high, with goals for gross margin to continue to surpass 70%.
All this sounds great, but some investors have expressed worries about an element that could weigh on Nvidia. And this is competition from its very own customers. For example, players such as Amazon (AMZN 1.22%) and Alphabet have developed their own chips, meaning their cloud businesses don't have to turn to Nvidia or other outside providers exclusively.
But before worrying too much about this issue, let's consider 16 words from Amazon chief Andy Jassy that represent spectacular news for investors ahead of Nov. 19 -- a big day for Nvidia.
Image source: Nvidia.
Nvidia and Amazon
First, though, a quick note about how Nvidia and Amazon work together. Nvidia designs the graphics processing units (GPUs) that power AI, from the training of models to offering the fuel they need as they go on to solve problems. And Amazon buys these chips to offer its cloud customers.
Rivals exist, from Advanced Micro Devices (AMD) to, as mentioned, chips designed by Nvidia's customers, but so far, Nvidia's chips remain the most powerful. And since AI customers are eager to win the AI race, they haven't hesitated to invest in the best possible tools. As a result, Nvidia's sales have roared higher.
This doesn't mean other chips and their designers are wallowing in the doldrums, though. AMD, for example, this past week wowed investors with its latest earnings report -- quarterly revenue surged 36% to a record $9.2 billion. And Amazon has said its in-house-developed Trainium chip platform is seeing solid demand.
All this has prompted some investors to wonder whether these trends will lead to slower growth for Nvidia down the road. And this brings me to the words from Amazon's Jassy that represent good news for Nvidia shareholders. It's key to note that Nvidia shareholders and Nvidia watchers are looking for any clue they can find about the company's future ahead of its earnings report on Nov. 19.
NASDAQ: NVDA
Key Data Points
Amazon's use of chips
Jassy, during Amazon's latest earnings call, spoke about Amazon Web Services (AWS), the company's cloud computing business, and its use of chips beyond those it designs in-house.
The 16 key words are, "We expect to keep growing our relationships over time" with Nvidia and other outside chip designers, Jassy said, calling them "important partners," and adding that Amazon also continues "to order very significant amounts" of Nvidia chips.
All this, along with Jassy's comments about seeing high demand for capacity, suggests that Amazon isn't looking to reduce its Nvidia chip orders -- and that there's plenty of room for both players to see significant growth in the years to come. Cost-conscious customers who turn to AWS's Trainium chip may not have necessarily opted for Nvidia in the first place, so AWS's product doesn't directly compete with Nvidia's latest GPUs. Instead, Trainium allows AWS to serve a broader range of customers, so it may boost AWS's revenue without hurting Nvidia's.
This offers us another reason to be optimistic about Nvidia's upcoming earnings report, regarding both quarterly growth numbers and what the company may forecast for the next few months. Nvidia has a track record of surpassing analysts' expectations, and it's possible this will continue. And that could set the stock up for more growth through the upcoming chapters of the AI story.
