The stealthy lab cooking up Amazon's secret sauce

The entrepreneur looked around a Seattle restaurant for a booth where he could have a private conversation.

- Ben Cohen

As the co-founder of Annapurna Labs, a secretive Israeli chip-design startup, Nafea Bshara was used to operating in stealth mode. His business was so allergic to publicity that it barely even had a website. But he was being especially discreet that night because his clandestine meeting was with an influential executive from one of the world's most valuable companies.

And it would result in one of the most consequential deals in tech history.

Their discussion of chips that began over beer and wine eventually led to Amazon buying the mysterious startup for about $350 million. Ten years later, it has become essential to the success of the whole company.

Amazon has long depended on Amazon Web Services—and Amazon Web Services depends on Annapurna.

The company's entire AI strategy is now built on a foundation of chips designed by Annapurna, which is so crucial that analysts have described this custom silicon as the secret sauce of AWS.

The person who might just have the deepest understanding of Annapurna's value is Amazon's chief executive. Before he succeeded Jeff Bezos, Andy Jassy led the company's giant cloud-computing business and made this deal.

"If and when they go back and tell the story of AWS," Jassy told me in an email, "our acquisition of Annapurna was one of the most important moments."

It looks even more important now that the AI boom has sparked a trillion-dollar arms race with Microsoft and Google also investing gigantic sums of money in powerful chips—the brains of artificial intelligence.

All the cloud titans are building their own custom hardware, partly to chip away at their reliance on Nvidia. And no company is spending more than Amazon.