Nvidia (NVDA), a GPU designer serving the gaming, data center, artificial intelligence, and auto industries, has historically spoken admiringly of Amazon. In its 2019 10-K, Nvidia mentioned Amazon three teams, each in the context of a Amazon being a customer:

“We are engaged with thousands of organizations working on AI...These organizations include the world’s leading cloud services companies such as Amazon...”

In its 2020 10-K, Nvidia disclosed it expects an increasingly competitive environment in FY22 and includes Amazon in its list of competitors:

“...large internet services companies with internal teams designing chips that incorporates HPC or accelerated computing functionality as part of their internal solutions or platforms, such as Alphabet Inc. and Amazon, Inc.”

Nvidia’s latest annual report mentions Amazon four times; two references are to Amazon as a customer and two as a competitor. Likewise, as a result of its Mellanox acquisition, Nvidia lists new competitors in the networking gear space, including Amazon’s in-house team:

“...suppliers of interconnect, switch and cable solutions such as Applied Optoelectronics, Inc., Arista Networks, Broadcom, Cisco Systems, Inc., Hewlett Packard Enterprise Company, Intel, Juniper Networks, Inc., Lumentum Holdings, Marvell Technology Group, and Xilinx, as well as internal teams of system vendors and large internet services companies such as Alphabet and Amazon.”

It’s no secret Amazon and others have begun designing their own chips and GPUs. What’s especially important to investors is a new risk Nvidia discloses, which suggests customers are using Nvidia's know-how to replace Nvidia’s products:

“In our networking business, some of our customers are also integrated circuit and switch suppliers and already have in-house expertise and internal development capabilities similar to ours. Licensing our technology and supporting such customers entails the transfer of intellectual property rights that may enable such customers to develop their own products and solutions to replace those we are currently providing to them. Consequently, these customers may become competitors to us. Further, each new design by a customer presents a competitive situation.”

The risk is amplified when you consider a separate piece of new language included in Nvidia’s latest annual report. The company hints competitors may be poaching its employees:

“...also may face risks to our intellectual property if our employees are hired by potential competitors.”