According to reports, at Amazon.com's chip lab in Austin, Texas, a half-dozen engineers are working on a new, heavily protected server design.

“The server was packed with Amazon's artificial intelligence chips that compete with those from market leader Nvidia,” says Amazon executive Rami Sinno.

Amazon is developing its processors to reduce its reliance on expensive NVIDIA chips (the so-called NVIDIA tax), which support part of Amazon Web Services' artificial intelligence cloud business, a growth driver.

Amazon hopes to enable its customers to perform complex calculations and process vast amounts of data more cheaply through its own chips. Rivals Microsoft and Alphabet are doing the same.

Sinno, director of engineering at Annapurna Labs, part of Amazon's AWS cloud business, said Amazon customers are increasingly looking for inexpensive alternatives to Nvidia.

The company's AI chip efforts are just beginning. Still, Amazon's flagship non-AI computing chip Graviton has been in development for nearly a decade and is now in its fourth generation. In contrast, AI chips Trainium and Inferentia are new designs.

"So the offering of up to 40 percent, 50 percent in some cases of improved price (and) performance - so it should be half as expensive as running that same model with Nvidia," says David Brown, Vice President of compute and Networking, AWS.

AWS, which accounts for just under one-fifth of Amazon's overall revenue, saw its January-March sales jump 17 percent year over year to $25 billion; AWS accounts for about one-third of the cloud computing market, while Microsoft's Azure has about 25 percent.

During its recent Prime Day, Amazon deployed a quarter million Graviton chips and 80,000 of its custom AI chips to handle the surge in activity across its platforms, according to reports.