AWS Faces Growth Challenges Amid AI Boom and Infrastructure Constraints

AWS Optimistic About Growth Despite Supply Chain, Power Constraints

'AWS is a reasonably large business by most folks' standards, and though we expect growth will be lumpy over the next few years as enterprise adoption cycles, capacity considerations, and technology advancements impact timing, it's hard to overstate how optimistic we are about what lies ahead for AWS customers and business,' Amazon CEO Andy Jassy told analysts during his company's fiscal 2024 conference call. Amazon Web Services' business is growing quickly as the IT world continues to embrace AI, but it could be growing faster except for some significant constraints, Amazon CEO Andy Jassy told financial analysts. Jassy, in his prepared remarks Thursday during Amazon's fiscal 2024 fourth quarter conference call, said that AWS saw its fourth quarter revenue grow 19 percent year-over-year and now has a $115 billion annualized revenue run rate. "AWS is a reasonably large business by most folks' standards, and though we expect growth will be lumpy over the next few years as enterprise adoption cycles, capacity considerations, and technology advancements impact timing, it's hard to overstate how optimistic we are about what lies ahead for AWS customers and business," he said. [Related: Storing, Feeding And Managing Data For Cloud, AI: The Biggest Storage News At AWS re:Invent 2024] That optimism stems from what Jassy said he sees when looking at the future. "While it may be hard for some to fathom a world where virtually every app has generative AI infused in it, with inference being a core building block just like compute, storage and database, and most companies having their own agents that accomplish various tasks and interact with one another, this is the world we're thinking about all the time," he said. "And we continue to believe that this world will mostly be built on top of the cloud, with the largest portion of it on AWS." To realize this future requires several powerful capabilities, Jassy said. At the bottom layer are compelling chips, the key compute ingredient driving training and inference, Jassy said. "Most AI compute has been driven by Nvidia chips and we obviously have a deep partnership with Nvidia and will for as long as we can see into the future," he said. "However, there aren't that many generative AI applications of large scale yet, and when you get there, as we have with apps like Alexa and Rufus, cost can get steep quickly. Customers want better price-performance, which is why we built our own custom AI silicon." Amazon's latest silicon is Trainium2, launched in December at its AWS Re:Invent conference. Jassy said AWS EC2 instances on Trainium2 typically offer 30 percent to 40 percent better price performance than other current GPU-powered instances available, which is very compelling at scale, he said. "We're collaborating with Anthropic to build Project Rainier, a cluster of Trainium2 ultra servers containing hundreds of thousands of Trainium2 chips," he said. "This cluster is going to be five times the number of Exaflops as a cluster that Anthropic used to train their current leading set of cloud models. We're already hard at work on Trainium3, which we expect to preview late in '25, and defining Trainium4 thereafter." Building top-performing chips with leading price performance has become a core strength of AWS, Jassy said. "It's something unique to AWS relative to other competing cloud providers," he said. Another key AWS component is services that make it easier for model builders to construct their models. He cited as an example Amazon SageMaker AI, which he said is the go-to service for AI model builders to manage their AI data, build models, experiment, and deploy those models. Amazon at re:Invent unveiled SageMaker's enhanced HyperPod technology, which automatically splits training workloads across many AI accelerators, with new capabilities including the ability to manage costs at a cluster level and prioritize which workloads should receive capacity when budgets are reached. For developers looking to leverage frontier models to build GenAI apps, Amazon Bedrock offers features that make it easy to build a high-quality generative AI application, Jassy said. Amazon at re:Invent said over 100 popular emerging models now work on Bedrock and Sagemaker. "We also just added DeepSeek's R1 models to Bedrock and SageMaker," he said. "And additionally, we delivered several compelling new Bedrock features at re:Invent, including prompt caching, intelligent prompt routing, and model distillation, all of which help customers achieve lower cost and latency in their inference." At the top layer of the stack, Amazon Q has become the most capable GenAI-powered assistant for software development leveraging a company's own data, Jassy said. "Early customer testing indicates that Q can turn what was going to be a multi-year effort to do a mainframe migration into a multi-quarter effort, cutting by more than 50 percent time to migrate mainframes," he said. "This is a big deal and these transformations are good examples of practical AI." Jassy, when asked by a financial analyst whether AWS growth is being slowed by supply chain constraints, said that for a company with a multi-billion-dollar annualized revenue run rate business and AI revenue that's growing by triple-digit percentages year over year, it's hard to complain. "However, it is true that we could be growing faster if not for some of the constraints on capacity," he said. "I would say chips from our third-party partners come a little bit slower than before, with a lot of midstream changes that take a little bit of time to get the hardware actually yielding the percentage [of] healthy and high-quality servers we expect. It comes with our own big, new launch of our own hardware on our own chips with Trainium2, which just went to general availability at re:Invent. But the majority of the volume is coming in, really, over the next couple quarters, next few months." Other headwinds come from worldwide constrained power availability as well as shortages in certain components such as motherboards, Jassy said. "I think the team has done a really good job scrapping and providing capacity for our customers so they can grow," he said. "We're still growing at a pretty reasonable clip, as I mentioned earlier, but I do think we could be growing faster if we were unconstrained. I predict those constraints really start to relax in the second half of '25." DeepSeek When asked by another analyst about the impact of opensource AI on AWS, Jassy said that many in the industry were impressed with what DeepSeek has done. "In part, impressed with some of the training techniques, primarily in flipping the sequencing of reinforcement learning being earlier and without the human in the loop," he said. "We thought that was interesting ahead of the supervised fine tuning. We also thought some of the inference optimizations they did were also quite interesting. For those of us who are building frontier models, we're all working on the same types of things. We're all learning from one another. I think you have seen and will continue to see a lot of leapfrogging between us. There is a lot of innovation to come." Jassy said that rather than fear DeepSeek, it is important to embrace it along with as many AI models as possible. "If you run a business like AWS, and you have a core belief like we do that virtually all the big generative AI apps are going to use multiple model types and [that] different customers are going to use different models for different types of workloads, you're going to provide as many leading frontier models as possible for customers to choose from," he said. "That's what we've done with services like Amazon Bedrock. And it's why we moved so quickly to make sure that DeepSeek was available both in Bedrock and in SageMaker faster than you saw from others. We already have customers starting to experiment with that." Amazon By The Numbers For its fiscal 2024 fourth quarter, ended December 31, Amazon reported revenue of $187.79 billion, up 10.5 percent over the $169.96 billion the company reported for its fourth fiscal quarter 2023. That beat analyst expectations by $560 million, according to Seeking Alpha. Total revenue included product sales of $82.23 billion, up from $76.70 billion, and services sales of $105.57 billion, up from $93.26 billion. Of the total sales in the quarter, Amazon Web Services accounted for $28.79 billion, up from last year's $24.20 billion. Amazon also reported GAAP net income of $20.00 billion or $1.86 per share, nearly double last year's $10.62 billion or $1.00 per share. That beat analyst expectations by 38 cents per share, according to Seeking Alpha. For its full fiscal year 2024, Amazon reported revenue of $637.96 billion, up 11.0 percent from the $574.79 billion the company reported for fiscal 2023. That included product sales of $272.31 billion, up from last year's $255.89 billion, and services sales of $365.65 billion, up from $318.90 billion. Of the full year's sales, $107.56 billion came via AWS, up from last year's $90.76 billion.

Low-quality hardware, server supply chain kinks, slow AWS AI

Reverses life extensions for some servers it now feels aren't useful in the inferencing age Amazon Web Services is struggling to get the high-quality servers it needs to build AI infrastructure and has retired other hardware early to make room to accelerated machines. Those peeks into the state of AWS infrastructure came from CEO Andy Jassy and CFO Brian Olsavsky, who revealed the info during the Thursday earnings call that saw Amazon detail its 2024 financial year and outline future plans. Olavsky used his prepared remarks to reveal that Amazon recently conducted a "useful life study" for its servers and networking equipment, and found "an increased pace of technology development, particularly in the area of artificial intelligence and machine learning." Those findings mean the company decided to reduce the useful life for a subset of its servers and networking equipment from six years to five years, as of January 2025. Amazon also retired some other servers and networking boxes early, for unexplained reasons. Just a year ago, Amazon increased the working life of its servers from five to six years, up from the five years it decided on in 2022. Also on the call, a Wall Street analyst asked if AWS's AI infrastructure build is being hampered by supply chain issues. Jassy said that is the case. "We could be growing faster if not for some of the constraints on capacity," he admitted, adding that "Chips from our third-party partners come in a little bit slower than before." He also said it can "take a little bit of time to get the hardware actually yielding the percentage healthy and high-quality servers we expect." Shortages of components like server motherboards are also a constraint, as is energy supply. Supply problems matter because Amazon spent $26.4 billion on capital expenditure in the final quarter of 2204, and Olavsky said most of that went towards AI infrastructure for AWS. The CFO said $26.4 billion will be typical of Amazon's quarterly capex in FY 2025, suggesting hardware spend approaching $100 billion for the year. Spending on AI infrastructure is a hot topic after Chinese model-maker DeepSeek claimed it was able to train its wares on modest hardware in a short time, suggesting huge builds might not pay for themselves. Jassy said Amazon is unworried by such arguments, because "we think virtually every application that we know of today is going to be reinvented with AI inside of it and with inference being a core building block just like compute and storage and database." The CEO said the faster AWS grows, the more its capex grows "because we have to procure data center and hardware and chips and networking gear ahead of when we're able to monetize it." "We don't procure it unless we see significant signals of demand," he said. "And so, when AWS is expanding its Capex, particularly in what we think is one of these once-in-a-lifetime type of business opportunities like AI represents, I think it's actually quite a good sign medium-to-long term for the AWS business." The signs are already good for AWS, which posted annual revenue of $107.6 billion, 19 percent up from last year's tally. Q4 revenue for AWS was $29 billion, meaning its annual revenue run rate is $115 billion. By way of comparison, Dell's most recent full year revenue was $88.5 billion, IBM's was $62.8 billion, Cisco racked up $53.8 billion of revenue and HPE won $30.1 billion. Microsoft's annual revenue of $245.1 billion lies ahead - but it's hard to disentangle the consumer, gaming, and advertising revenue from Redmond's haul to make a direct comparison of business tech revenue. We think AWS is a few tens of billions behind for now. Amazon's revenue for the year ended December 31, 2024, was $638.0 billion, up eleven percent from FY 2023's $574.8 billion. Net income of $59.2 billion almost doubled FY 2023's $30.4 billion. The company thinks those numbers will improve as it invests more in robotics, which will also account for chunk of capex spend. Jassy said the 1,000-plus generative AI applications already running at Amazon may also help. Among the uses of generative AI at Amazon are: As 2025 unfurls, Jassy said shoppers on Amazon will see its "Rufus" agent appear more often and offer advice on what to buy. Investors were advised that Q1 2025 will see revenue of $151.0 to $155.5 billion, growth of between five and nine percent. In case the guidance felt low, Amazon reminded shareholders that 2024 was a leap year in which the extra day's trading on February 29th meant an additional $1.5 billion of sales, Investors weren't thrilled, with after hours trading seeing Amazon shares drop from over $239 apiece to just over $229. The Q1 forecast appears to have been one reason for shareholders' lack of enthusiasm. AWS's growth rate may be another, as it's accelerating more slowly than rivals Google and Microsoft. ®

Amazon, echoing Microsoft, says it can't keep up with AI demand

Chief Executive Officer Andy Jassy, determined for Amazon to become an AI supermarket, is spending big to retain the company's edge in cloud-computing services. Still, he warned growth would be "lumpy" and hinted Amazon could face capacity issues related to delays in getting hardware and not having sufficient electricity.Amazon.com Inc. warned investors that it could face capacity constraints in its cloud computing division despite plans to invest some $100 billion this year, with most of the money going toward data centers, homegrown chips and other equipment to provide artificial intelligence services. Chief Executive Officer Andy Jassy, determined for Amazon to become an AI supermarket, is spending big to retain the company's edge in cloud-computing services. Still, he warned growth would be "lumpy" and hinted Amazon could face capacity issues related to delays in getting hardware and not having sufficient electricity. "It is true we could be growing faster were it not for some of the constraints on capacity," Jassy said on a conference call Thursday after the release of fourth-quarter results. The concerns echo those of rival Microsoft Corp., which last week said its cloud sales growth was hurt because it didn't have enough data centers to handle demand for its AI products. Jassy said the supply of chips -- from third parties and Amazon's own chip design unit -- and power capacity are limiting the ability of Amazon Web Services to bring new data centers online. Those constraints will likely ease in the second half of 2025, he said. Amazon spent $26.3 billion in capital expenditures in the last three months of 2024, the vast majority of which went toward AI-related projects within AWS. Jassy told analysts on the call that the amount was "reasonably representative" of the rate of outlays the company planned to make in 2025. The company reported that AWS revenue jumped 19% to $28.8 billion in the quarter ended Dec. 31. It was the third straight period of 19% growth for the cloud unit. Operating income generated by the unit was $10.6 billion, exceeding the average projection of $10.1 billion. "AWS growth did not accelerate as anticipated and instead matched Q3 levels, indicating that the company is challenged by the same types of capacity constraints facing rivals Google and Microsoft," said Sky Canaves, an analyst at Emarketer. Jassy's warning on AWS growth constraints overshadowed a fairly strong holiday quarter, suggesting the company's main e-commerce and logistics business is fending off competition from Walmart Inc. and discount upstarts like Temu and Shein. The shares declined about 4% in extended trading after closing at $238.83 in New York. The stock has gained 8.9% so far this year after a 44% jump in 2024. The AI race will likely weigh down profits. Operating income will be $14 billion to $18 billion in the period ending in March, the Seattle-based company said in a statement. Analysts, on average, projected $18.2 billion, according to data compiled by Bloomberg. First-quarter sales will be as much as $155.5 billion, compared with an average estimate of $158.6 billion. While Amazon's overall quarter was generally positive, "investors immediate concerns are around Q1 guidance, which was below expectations, mostly because of the impact of a big currency drag and the impact of lapping a leap year," said Gil Luria, an analyst at DA Davidson & Co. The company said the extra day in the quarter in 2024 boosted sales by about $1.5 billion. Total revenue in the holiday quarter increased 10% to $187.8 billion, slightly ahead of analyst estimates. Operating profit was $21.2 billion, compared with the average estimate of $18.8 billion. Total operating expenses rose 6.2% to $166.6 billion -- marking the eighth consecutive quarter that Amazon's revenue increased at a higher rate than costs. The company employed more than 1.55 million full- and part-time workers at the end of the quarter, a 2% increase from a year earlier.

AWS completes the set with slower cloud growth expectations alongside Google and Microsoft. Play the long game, urges CEO Andy Jassy

There was a lot hanging on Amazon Web Services yesterday as parent Amazon turned in its latest quarterly numbers. After Microsoft and Google Cloud both disappointed Wall Street with their growth numbers and outlook, would AWS buck the trend and put some vim back in the market? Spoiler - it didn't. For Q4, AWS revenue came in at $28.79 billion, less than Wall Street had been looking for although still representing year-on-year growth of 19% with an annualized run rate of $115 billion. That's a better growth rate than Amazon's overall Q4 revenue rate of 10%, - to $187.8 billion in total - but behind Google Cloud on 30% and Microsoft on 21% for their comparable quarters. The outlook for Q1 of the fiscal year was, in common with its two main rivals, also more downbeat than investors wanted to hear. Amazon CEO Andy Jassy was inevitably more upbeat in his remarks: AWS is a reasonably large business by most folks' standards. And though we expect growth will be lumpy over the next few years as enterprise adoption cycles, capacity considerations and technology advancements impact timing, it's hard to overstate how optimistic we are about what lies ahead for AWS's customers and business. He added that away from the AI hype cycle, AWS continues to do business as usual: We haven't lost our focus on core modernization of companies' technology infrastructure from on-premises to the cloud. We signed new AWS agreements with companies, including Intuit, PayPal, Norwegian Cruise Line Holdings, Northrop Grumman, the Guardian Life Insurance Company of America, Reddit, Japan Airlines, Baker Hughes, the Hertz Corporation, Redfin, Chime Financial, Asana, and many others. Consistent customer feedback from our recent AWS Reinvent gathering was appreciation that we're still inventing rapidly in non-AI key infrastructure areas like storage, compute, database and analytics. And just to top it all off, CapEx spending of $26.3 billion in Q4 is likely to remain the norm for the coming quarters as the firm continues to invest in and build out the underlying infrastructure it needs to accommodate the needs of a AI-driven increase in cloud demand. Jassy explained: We're still growing at a pretty reasonable clip, but I do think we could be growing faster if we were unconstrained. I predict those constraints [of supply chain and power and capacity] really start to relax in the second half of 2025. As I said, I think we could be growing faster even though we're growing a pretty good clip today. Hence the need for ongoing relatively high CapEx spend, the vast majority of which is going on AWS, he confirmed: The way the AWS business works and the way the cash cycle works is that the faster we grow, the more CapEx we end up spending because we have to procure data center and hardware and chips and networking gear ahead of when we're able to monetize it. We don't procure it unless we see significant signals of demand. And so, when AWS is expanding its CapEx, particularly in what we think is one of these once-in-a-lifetime type of business opportunities like AI represents, I think it's actually quite a good sign medium-to-long term for the AWS business. And don't expect DeepSeek's claims of lower cost investment up front to change the need for the current spending levels, warned Jassy: One of the interesting things over the last couple of weeks is sometimes people make the assumption that if you're able to decrease the cost of any type of technology component, - in this case, we're really talking about inference - that somehow it's going to lead to less total spend in technology. We just have never seen that to be the case. We did the same thing in the cloud when we launched AWS in 2006, where we offered S3 object storage for $0.15 a gigabyte and compute for $0.10 an hour...People thought that people would spend a lot less money on infrastructure technology. What happens is companies will spend a lot less per unit of infrastructure and that is very, very useful for their businesses, but then they get excited about what else they could build that they always thought was cost-prohibitive before and they usually end up spending a lot more in total on technology once you make the per unit cost less. The CapEx spend now will be worth it in the end, he added: AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the Internet. And so, I think that both our business, our customers and shareholders will be happy medium-to-long term that we're pursuing the capital opportunity and the business opportunity in AI. Play the long game, Jassy urged the short-termists one more time on the post-earnings analyst call: I spend a fair bit of time thinking several years out. And while it may be hard for some to fathom a world where virtually every app has generative AI infusing it, with inference being a core building block just like compute, storage and database, and most companies having their own agents that accomplish various tasks and interact with one another, this is the world we're thinking about all the time. We continue to believe that this world will mostly be built on top of the cloud with the largest portion of it on AWS. He's preaching to the converted as far as diginomica is concerned, even if it falls on deaf ears on Wall Street. One day they'll all stop getting into a tail-spin about being told you need to speculate to accumulate, surely?