Amazon’s generative AI business has hit a multi-billion dollar run rate that’s reaccelerated cloud growth

Amazon recorded its largest quarterly operating profit in its history in the first quarter, the tech giant announced on Tuesday, as Amazon Web Services hit a $100 billion annual revenue run rate and CEO Andy Jassy’s multi-year, cost-cutting maneuvering padded the bottom line. AWS revenue in the first three months of the year increased by 17%, the fastest clip since 2022.

Jassy used his call with Wall Street analysts to continue to raise expectations about how transformational generative AI technologies will be to Amazon’s future financial performance and to AWS clients. Tens of thousands of customers are already using Amazon’s cloud-based AI service, known as Bedrock, and Jassy predicted that many more will embrace generative AI as they discover how easily it can be integrated into their products.

“Unlike with the cloud where there’s a lot of work to be done to move from on-premise [servers] to the cloud,” Jassy said, “all of these generative AI…workloads..are going to be built form scratch on the cloud largely.”

While many AI companies, including Anthropic, currently use AWS services to train the large language models that underpin their products, Amazon executives on Tuesday’s earnings call said that the bigger long term business opportunity could come from companies operating their AI models on its cloud, a process called “inference.” Jassy said that Gen AI-related business is currently on track to drive multiple billion dollars of AWS revenue this year, and that he believes the AI business boom could last for ten to twenty years as customers embrace the technology.

Amazon’s upfront investments to fulfill longterm AI demand will not be cheap. The company spent more than $48 billion on capital expenditures in 2023, and executives said that number will “meaningfully increase” in 2024, though they did not specify by how much. Amazon CFO Brian Olsavsky did say that the $14 billion Amazon spent in capital expenditures in the first quarter is expected to be the lowest quarterly total for the year.

While some of that spending is going toward Amazon’s continued investment in expanding its warehouse footprint and fleet of delivery vans, the primary reason for the step-up is to support AWS’ growth and the demand from the generative AI boom.

At a higher level, Amazon executives said they believe that AWS clients are largely past the cost-optimization focus of the first couple years of the pandemic and ready to focus on modernizing their tech infrastructure and investing in new areas such as Gen AI.

Internally, divisions of the company focused on AI products and services are some of the only ones where Amazon employees should expect to see significant hiring, the CFO alluded.

“Generally most teams are working hard to keep headcount flat and…automate what we can,” Olsavsky said on a media call with reporters.

Beyond AWS, Amazon’s transformation into as much a services business as a retail business continues to bear fruit. Revenue that Amazon generates from fees it charges its third-party sellers grew 16% to more than $34 billion in the quarter, while advertising revenue rose 24% to nearly $12 billion.