Amazon (AMZN  ) Web Services (AWS) has designed a second-generation, more powerful processor chip for its cloud-computer customers that will compete with Intel (INTC  ) and Advanced Micro Devices (AMD) (AMD  ) as it is pouring more money into this fast-growing business. This chip, called Graviton2, is aimed at cloud-native applications. No release date has yet been specified. Before Amazon unveiled its first Graviton last year, most companies including itself, Microsoft (MSFT  ), and Alphabet (GOOGL  ), exclusively used Intel Xeon chips.

Analyst predictions indicate that Amazon's cloud unit will generate $34.9 billion in FY 2019. Intel currently controls more than 90% of the server processing market with AMD controlling the other 10%. Cloud computing has become a growing market for data center chip makers as most server chips go to the cloud. Amazon's chip arm poses a threat to Intel and AMD. Bernstein analyst Stacy Rasgon commented that although Amazon's initial chip did not impact Intel's business too much it has enough resources to pose a threat: "Arm by itself I'm not worried about, but Arm in the hands of an Amazon or a Google who could potentially invest in it, that becomes potentially more problematic". Amazon is showing that it is serious and that it will not be backing out of the chip market anytime soon.

How do its chips compare? Amazon's chips are less powerful but cheaper and consume less electricity than Intel's. Chip buyers usually focus on factors such as speed, size, power consumption and cooling costs. This is considered the "total cost of ownership". Amazon's Graviton 2 uses newer technology than Graviton 1 (Neoverse N1 vs Cortex A72 respectively). Amazon acquired startup Annapurna Labs in 2015 which was the turning point for creating its own chips.

Graviton2 has a 2x faster floating-point performance per core, support for up to 64 virtual CPUs, 25Gbps of networking, and 18 Gbps of EBS Bandwidth. AWS is now planning to move all of its internal services to Graviton2. Although this requires a very large investment on Amazon's part, the company is able to eliminate the middleman that procures processors and save power due to infrastructure optimization.