Amazon's stock price rose by about 0.9% to around $248.50. Previously, Amazon Web Services ( AWS ) signed a multi-year chip design licensing agreement with Synopsys worth over $1 billion, further strengthening AWS's strategy to enter the custom AI chip market.

According to the agreement, AWS will obtain the intellectual property rights for chip design and engineering tools from Synopsys. Amazon is using this to develop its own Trainium AI accelerators and Graviton processors. The two companies have not disclosed which specific AWS chips will use these licensed designs.

This transaction adds another layer to Amazon's strategy, which is to bring more AI infrastructure components under its own control, rather than relying entirely on external chip suppliers.

AWS Encoded Custom Silicon Wafers

Driven by the demand for AI, there has been a significant increase in spending on cloud infrastructure, and Amazon has been expanding its in-house chip business.

Trainium is used for AI training and inference, while the Graviton processor is designed for general cloud workloads. Synopsys can help AWS shorten the chip development cycle by providing reusable intellectual property and design technologies, eliminating the need for Amazon to build each component from scratch.

This is very important, as AWS has become the main driver of the broader increase in Amazon's stock price. AWS's revenue recently grew by about 37% year-on-year, reaching $42.2 billion, marking the fastest growth rate in 18 quarters.

Amazon also plans to invest approximately $220 billion in capital expenditures in 2026, a large portion of which will be used for data centers, servers, and AI infrastructure.

What does this transaction pair mean for Amazon's stock price?

For Amazon's stock price, the key question is whether custom chips can improve the economic viability of this massive AI investment.

Management stated that Amazon's in-house silicon chip business has achieved an annual revenue of approximately $25 billion. If Trainium and Graviton can occupy a larger share of the workload in AWS, Amazon may be able to reduce its dependence on third-party processors and retain more value within its own cloud ecosystem.

This is also one of the reasons why Wall Street remains optimistic. Goldman Sachs recently raised its target price for AMZN to $375, citing stronger growth in AWS and an increasing momentum in their own chip development.

The greater challenge is that AI expenditures have begun to put pressure on free cash flow. Therefore, investors need to see that higher capital expenditures can be translated into stronger cloud revenue and profit margins. Coinpaper has also previously discussed the topic of return on investment for large technology companies AI.