Generative AI is now driving billions of dollars worth of annualized revenue into Amazon’s cloud business, re-accelerating the growth of Amazon Web Services, and company officials say it will continue to generate profits for decades to come. It has become a source of much-anticipated business.
Amazon posted its biggest-ever quarterly operating profit in the first quarter, the company said Tuesday, as Amazon Web Services’ annual sales hit $100 billion and CEO Andy Jassy’s multiyear cost-cutting measures inflated profits. Announced. . His AWS revenue for the first three months of this year increased by 17%, the fastest growth since 2022.
Throughout his call with Wall Street analysts, Jassy continued to raise expectations about how generative AI technology will be transformative for Amazon’s future financial performance and AWS customers. Amazon’s cloud-based AI service, known as Bedrock, is already used by tens of thousands of customers, and many more will adopt generative AI as they find it easy to integrate it into their products, he said. Jassy predicted.
“It’s not like the cloud, which requires a lot of work to migrate from on-premises. [servers] “All these generative AI workloads will be built from scratch primarily on the cloud,” Jassy said.
Many AI companies, including Anthropic, currently use AWS services to train the large-scale language models that underpin their products, but Amazon executives said on Tuesday’s earnings call that companies can use AWS services to train the large language models that underpin their products. He said that operating on their own cloud could provide greater long-term business opportunities. A process called “reasoning.” Jassy said that Gen AI-related businesses are currently on track to drive AWS’s revenue into the billions of dollars this year, and that as customers embrace the technology, the boom in AI businesses is likely to increase in the next 10 to 20 years. He said he thinks it could last for a year.
Amazon’s upfront investment to meet long-term AI needs is not cheap. The company will spend more than $48 billion in capital expenditures in 2023, and executives said that number would “significantly increase” in 2024, without disclosing the amount. Amazon Chief Financial Officer Brian Olsavsky said the $14 billion the company spent on capital expenditures in the first quarter is expected to be its lowest quarterly total this year.
While some of this spending will go toward Amazon’s continued investment in expanding its warehouse space and delivery van fleet, the primary reason for the increase is to support demand from AWS’s growth and generative AI boom.
At a higher level, AWS customers have largely moved past the cost optimization focus of the first years of the pandemic and are ready to focus on modernizing their technology infrastructure and investing in new areas such as Gen AI. , said an Amazon executive.
Internally, the CFO hinted that internal divisions focused on AI products and services are some of the only divisions expected to see significant hiring for Amazon employees.
“In general, most teams are working hard to keep headcount constant and automate what they can,” Orsavsky said on a media call with reporters.
Beyond AWS, Amazon’s transformation into a services industry as much as a retail industry continues to bear fruit. Revenue from Amazon’s fees charged to third-party sellers rose 16% to more than $34 billion in the quarter, while advertising revenue rose 24% to nearly $12 billion.
