Amazon’s stock price had already been dropping in after-hours trading on Thursday despite better-than-expected results when Morgan Stanley analyst Brian Nowak prefaced his questions on an earnings call with a disclaimer that made it clear this wasn’t going to be a “Congrats on the quarter, guys” type of analyst-CEO interaction.
“I have two [questions] for you on AWS; they’re a little tough, but I’m going to throw them at you,” Nowak told Amazon CEO Andy Jassy. “There is a Wall Street finance person narrative right now that AWS is falling behind in gen AI with concerns about share loss to peers. What is your rebuttal to that, and talk to us about your and the team’s most important focal points, just to ensure that AWS stays on the knife’s edge of innovation versus hyperscaler peers.”
Nowak also pressed Jassy on why it wouldn’t be fair to assume that AWS revenue growth shouldn’t accelerate in the back half of the year given all of AWS’ generative AI offerings and widespread demand from companies of all sizes to cash in on this transformational technology.
Jassy responded by stressing that these are the early stages of a technological transformation that will extend far into the future. While some of the top frontier model providers do use AWS in some capacity, non-AI AWS customers that are rushing to build generative and agentic AI services using AWS are “quite early, and many of them are just smaller in terms of usage relative to some of those top-heavy applications I mentioned earlier.” That is bound to change.
So if you follow Jassy’s thinking, as more enterprises figure out what they want to build and how they want to build it, they’re going to start having different needs. For the largest model makers, like OpenAI or Anthropic, Jassy foresees their costs shifting from a mix between training their models and the cost associated with “inference,” or the customer-facing part where the model spits out a prediction, answer, or action, to mostly inference expenses. And Jassy maintains AWS is positioned well for this transition because of the low-cost AI chip line Trainium.
“It’s about 30% and 40% better price performance than the other GPU providers out there right now, and we’re already working on our third version,” he said.
For others, who want to use another company’s model to create their own generative AI applications, Jassy argued that Amazon Bedrock, which offers models from a wide selection of companies, has become a go-to destination, and “is growing very substantially.”
Jassy continued on the this-is-just-the-first-inning thread, by noting that companies are just starting to think about deploying AI agents and that, with its recent agentic AI announcements, AWS will be well positioned to capitalize.
The Amazon CEO, and former AWS chief, added that AWS’ cloud leadership position also provides some lock-in as AI “inference” becomes just another component of a company’s cloud services stack.
“People are going to actually want to run those [AI] applications close to where their other applications are running, where their data is,” Jassy said. “There’s just so many more applications and data running in AWS than anywhere else.”
As for Nowak’s question about the possibility of AWS’ growth rate accelerating in the back half of the year, Jassy wouldn’t directly answer it but stressed his optimism, in part stemming from AWS customers starting to deploy more AI products at scale that should continue to ramp up in coming quarters.
Earlier in the call, Jassy had defended AWS’ 18% revenue growth rate in light of Microsoft reporting 34% annual revenue growth for its Azure cloud unit and Alphabet recently reporting 32% quarterly growth for Google Cloud. Azure generates around two-thirds the revenue that AWS does, while Google Cloud registers less than half the annual revenue of Amazon’s cloud behemoth.
“You look at the business, it’s a $123 billion annual revenue run rate business, and it’s still early,” he said. “How often do you have an opportunity that’s $123 billion in annual revenue run rate where you say it’s still early? It’s a very unusual opportunity that we’re very bullish about.”
Are you a current or former AWS employee with thoughts on this topic or a tip to share? Contact Jason Del Rey at jason.delrey@fortune.com, jasondelrey@protonmail.com, or through messaging apps Signal and WhatsApp at 917-655-4267. You can also contact him on LinkedIn or at @delrey on X, @jdelrey on Threads, and on Bluesky.
