Why Amazon Is Diversifying Its AI Chip Supply

JoAnne, there's been a lot of concern about circular financing amid this AI boom. Is this kind of deal gonna raise those concerns as well? I I Riley, I think we're gonna see, always that conversation pop up. Whenever you see cross investments by companies, by buyers, and their customers, and their suppliers. So our view is that circular financing is really sort of an alternative way for companies to become more vertically integrated, to have more control over the inputs, the technology that they need to use to build out their capacity in the future. And this is another example of that. Investors still have the opportunity to diversify risk and pick the areas in which they wanna have most exposure. But these kinds of deals sort of combine, the types of exposure an investor will get now with with Amazon because now owning Amazon means you're gonna own a little bit of Qualcomm. But but it's a really innovative idea for solving what is a complex financial markets problem, which is the limitations on borrowing, the different capacities of balance sheets by these companies, and it also creates long term contracts. And it gives, Amazon more skin in the game at the Qualcomm level, which gives Qualcomm the confidence to be able to build up this capability and to take the risk of creating big design teams and putting the resources into that. So it's a really effective way of sharing that kind of risk, and it means that innovation likely happens much more quickly than it would otherwise occur. And, JoAnne, what does Amazon get out of working with Qualcomm that it couldn't achieve itself? It's a behemoth, a company that is closely followed by anybody watching the tech sector, but what is it getting here? So it it gets another supplier. It gets another, designer, co designer for chips. It gets more supply on the connectivity side and ultimately on the AI inference side. It's already working with Marvell, and perhaps that, you know, one partnership, could have been seen as too risky. And so they get to diversify, which gives them better pricing power down the line for acquiring these chips. And it also gives them more, protection against NVIDIA's price levels, which, you know, ultimately probably soften a little bit with with this increasing competition among the chip designers. You know, Broadcom is another player here that Amazon, you know, doesn't currently work with, but it is a way for Amazon to diversify and to get multiple sources for these chips in the future. I'm glad you mentioned NVIDIA. Does this deal suggest that concentration around that company is softening as well? Yeah. We should expect it to, Riley, which really doesn't diminish the attractiveness of NVIDIA as an investment. It is one of our, holdings, across a few of our different strategies. We've known it for a long time. The the thing to think about is the size of the market, how much that is growing versus market share. You know, NVIDIA has been dominant. They've had massive and dominant market share, and we should expect that market share to fall as more players come in. But that doesn't, you know, mean that NVIDIA is doomed here. By contrast, the market itself, we believe, is growing so quickly that all of these players, at least the ones that, you know, we like Broadcom, NVIDIA, AMD, and and then the users like Amazon, Microsoft, Google, etcetera, we think they're playing into a very quickly growing market. We we see the revenues coming up at places like Anthropic and OpenAI, you know, at least the information we can get out of them, which suggests that this AI infrastructure build and deployment of applications remains a really, you know, powerful growth opportunity for investors with a a long term horizon. Amid this AI infrastructure boom, we've recently received new jobs numbers. I wonder when you look at that data, what are you seeing about the data center build out? Yeah. So, you know, what we're seeing there is a few different things. One is obviously a very strong jobs report. There was some softness in some areas of infotech job creation and real strength in other areas, and that should be expected. Right now, we're seeing labor being drawn into data center construction. There's always been the question of, you know, will AI ultimately, you know, reduce job opportunities in some places in the economy? There were some some evidence of that, but there was an economist article out over the weekend that suggested that the, you know, AI space is is not leading to massive job destruction. So right now, the AI data center build, the infrastructure build is creating a lot of job opportunities in a war in a country where labor is actually in short supply in that area. So it's a tricky situation. We've seen those fees on the h one b visas actually constraining applications, and that's actually the kind of labor we need more of in this country. So we'll see how the industry deals with that labor shortage. That could be a real concern for investors to be watching going forward. When you think about the labor shortage, there's also the workers who are physically building this footprint across The United States. Is there enough labor to support the physical build out? You know, Ronnie, that's exactly the right area to point at, and that's where we may have real shortages. I mean, immigrant labor, we know, is a big part of the construction industry, both housing and commercial, builds. We know it's big part of travel and leisure industry. And and so those shortages, I think, will will be constraining. I've talked to folks who report that they can't get enough roofers to build all the houses they want, and so they've had to cut their housing building plans back by half this year. This is a a a client down in Texas, for example. So, you know, we are starting to see that. I think it is constraining the housing industry, and I think that the construction workers are being pulled into the data center builds, and it's hurting actually other parts of the economy. So so far, they're able to pay up to get the construction labor that they need, but it's certainly something that we need to keep keep, top of mind.