Amazon’s Potential Arm IPO Investment: 5 Things To Know From AI To AWS

From boosting AWS cloud capabilities to making Amazon an AI powerhouse, here are five things to know about Amazon’s potential anchor investment in Arm’s upcoming IPO.

From reports that Amazon now owns more than 50 percent of all Arm server CPUs across the world to Amazon Web Services’ ambitious plans to pour billions into artificial intelligence and new data centers that need vast amounts of server CPUs, Amazon becoming a potential anchor investor in Arm’s upcoming IPO seems like a real possibility.

“I was with the CEO of OpenAI [Sam Altman] in April and he made a comment I thought was very provocative and compelling,” Justin Copie, CEO of Innovative Solutions, a Premier Tier AWS partner, told CRN. “It was around the fact that whoever owns and can get computer processing to a place that is exponentially bigger, faster, and better than it is today—they will own the AI landscape. That will be the game changer for AI.”

Amazon’s AWS cloud business has already been working and co-innovating with semiconductor superstar Arm for years around Amazon’s Arm-based chip Graviton. However, Copie said if AWS can partner tighter with Arm via a potential investment in its IPO, the move could be an AI blockbuster.

“If you think about AWS and the very strategic direction they’re thinking about Arm and computer processing overall, I believe that it is predicated and probably being pushed largely based on the fact that if they can help accelerate this and they own that computing power at their disposal before anybody else—they have this competitive advantage to accelerate with AI better than anybody else,” said Copie. “So it’s very logical and understandable.”

[Related: Cloud Market Share Q2 2023: AWS, Microsoft, Google Battle]

Arm’s IPO is expected to be one of biggest in 2023, with the potential to raise up to $10 billion.

As a possible cornerstone investor for Arm’s IPO, Amazon and AWS have the ability to take its go-to-market relationship and technology synergies with Arm to the next level.

Nvidia’s Failed $40 Billion Bid For Arm

Before jumping into the five biggest things to know about Amazon and Arm’s IPO future, it’s key to note how Arm’s upcoming IPO in 2023 became such a hot topic across the IT industry.

Japan-based multinational investment firm SoftBank is the owner of UK-based Arm. The Japanese investment giant has been striving to put Arm on the public market since its blockbuster sale to fellow chip maker Nvidia for $40 billion fell threw in 2022 due to objections from antitrust regulators in Europe and the United States. This included a lawsuit from the U.S Federal Trade Commission seeking to block the deal over concerns that the GPU giant would unfairly use its ownership of Arm to hurt competition.

The deal failure prompted SoftBank to pivot planning for an Arm IPO. It’s not only semiconductor companies who are looking to jointly own the British chip designer, but other technology powerhouses as well, including the likes of industry titans such as Amazon and Google.

Here are the five biggest things Arm and AWS customers, partners and investors need to know about Amazon’s potential investment in Arm’s IPO.

Amazon Accounts For Over 50 Percent Of Arm-Based CPUs

According to a new report from Bernstein Research, the research analyst firm says Amazon has just over 50 percent of all Arm server CPUs across the globe deployed in AWS’ data centers.

These chips are optimized for the specific needs for cloud computing market share leader AWS. The partnership with Arm enables AWS to add more cores per socket or per rack while the chips also consume less power, according to Bernstein Research.

The global share of data center servers that are powered by Arm chips is expected to reach 22 percent by 2025, according to IT research firm TrendForce, up from about 8 percent share today.

The Takeaway: A deeper partnership between the companies would be a win-win. Amazon would be lucrative for Arm given its market-leading position in cloud, while AWS could better cement its dominance in cloud computing with better optimization and share of Arm CPUs.

Tighter Arm-AWS Partnership Could Be An AI Game-Changer: Partner

Innovative Solutions is a fast-growing solution provider that signed a strategic collaboration agreement with AWS in 2023, while also recently launching a new generative AI product in July dubbed Tailwinds on the AWS Marketplace.

The Rochester, N.Y.-based cloud provider believes Amazon has the ability to make a game-changing move in the AI industry if a deeper partnership with Arm is born.

Travis Rehl, senior vice president of product and services at Innovative, said AWS and Arm forming a tighter partnership could prove to be similar to how Apple is leveraging its partnership with chip manufacturer Taiwan Semiconductor Manufacturing (TSCM), which makes nearly all of Apple’s custom chips.

“Apple pours billions into [TSCM’s] R&D business. In return, they get access to the latest and greatest chips before everybody else for their phones and for their devices. Yeah, Apple’s paying a little premium, but they stay well ahead of the competition as a result,” said Rehl. “And it’s like a one-year lag time for anybody else to get the same level of compute optimization or compute power.”

Rehl said it takes an enormous amount of computational power to build and scale AI.

“There’s a race right now to find the best chip that can optimize that process so you can bring the best models to market the fastest,” he said. “Amazon is making a bet and saying, ‘If I get the best chips from the best vendor, and I make it homegrown native-AWS, it means our customers can go 2x-3x-4x faster than everybody else. And it’d be a no-brainer to go with Amazon for the cost effectiveness and go-to-market speed compared to Microsoft.”

The Takeaway: Arm CPUs tightly integrated with Amazon’s ever-growing AI portfolio could be the market differentiation that powers AWS’ massive push to become the dominant AI cloud leader.

AWS Building New Data Centers At Blistering Pace

In order to stay the No. 1 cloud company in the world, Amazon continues to spend billions each year on building new data centers across the globe that power its cloud services. Each AWS data center campus, known as AWS Regions and AWS Local Zones, are typically full of thousands of servers and other IT infrastructure that need CPUs to run.

As Bernstein Research noted, over 50 percent of all Arm server CPUs across the globe are now deployed in AWS’ data centers. This means AWS needs a semiconductor provider that has a somewhat endless amount of CPUs to buy from on both a short- and long-term basis.

AWS is arguably expanding its cloud computing footprint faster and wider than any company in the world by building and equipping new data centers.

For example, AWS in June unveiled a $7.8 billion investment in Ohio to build new data centers. Other massive data center investments AWS announced in 2023 include: $35 billion for new cloud regions across Virginia; $12.7 billion to build new data centers in India; and a $6 billion data center investment in Malaysia.

The Takeaway: AWS needs a semiconductor provider that has a relatively endless supply of CPUs to power its multibillion-dollar data center footprint expansion plans across the globe. Arm could have a steady flow of sales to Amazon for years to come.

Amazon Graviton

AWS currently works with Arm to create its own AWS Graviton processors that are used for its own internal use only. According to Bernstein’s report, Amazon’s Graviton accounted for approximately 20 percent of AWS CPU instances by the middle of 2022.

Amazon is looking to deploy its newer Graviton3 and Graviton3E processors. AWS says that Graviton3 provides up to 25 percent better compute performance, 50 percent more memory bandwidth, and up to two-times faster cryptographic workload performance compared to Graviton2. AWS Graviton3E processors deliver up to 35 percent higher vector-instruction performance compared to AWS Graviton3 processors.

The Takeaway: AWS is expected to continuously launch new and improved Graviton processors over the next several years, such as Graviton4, with the help of Arm.

Other Possible Cornerstone Investors: Nvidia, Intel, Google, Etc.

Arm is expected to launch its IPO on the Nasdaq Stock Market as early as next month. Amazon isn’t the only potential cornerstone investor Arm has courted ahead of its IPO.

The semiconductor company has reportedly courted nearly a dozen large IT companies including Apple, Google, Intel and Nvidia about potential investments before its official IPO. Arm, like other companies seeking to go public, wants cornerstone investors onboard to boost its customer ties and appeal to the public.

Nvidia terminated its bid to acquire Arm in 2022 due to “significant regulatory challenges” that included a lawsuit from the U.S Federal Trade Commission seeking to block the deal over concerns that the GPU giant would unfairly use its ownership of Arm to hurt competition. Before the deal fell through, Nvidia promised to invest in Arm’s research and development, maintain Arm’s open-licensing model and create more opportunities for Arm licensees.

The failure of the acquisition gave way to the idea of a consortium of Arm licensees—like Nvidia, Intel and Amazon—that would jointly invest in Arm to ensure the company could continue to be the “Switzerland” of the semiconductor industry.

The Takeaway: Amazon could still let Arm be the “Switzerland” of the semiconductor industry if it becomes the anchor IPO investor, while at the same time leveraging Arm for competitive advantages.