Amazon is 'last place' in the AI cloud race. Why that might not be a 'death sentence.'

In a recent analysis, Wall Street is grappling with the notion that Amazon Web Services (AWS) may be lagging in the competitive AI cloud sector. While this news raises concerns, it might not signal doom for the tech giant. Mark Shmulik, a prominent tech analyst at Bernstein, pointed out in a note to investors that AWS's position as a potential 'last place' in the AI cloud race is hard to dispute. He highlighted several factors contributing to this perception, including AWS's slower revenue growth, limited GPU capacity, and comments from the CEO indicating that many AI startups are choosing to develop their services on rival platforms. This shift in startup dynamics is partially attributed to the rise of generative AI and its impact on cloud spending. Shmulik noted that competitors like Microsoft Azure and Google Cloud are making significant headway, with Azure benefiting from an early partnership with OpenAI and Google Cloud showcasing its comprehensive offerings that include proprietary AI models and specialized AI chips, known as TPUs. Shmulik emphasized that the emergence of AI has transformed the landscape, introducing a wave of new startups and creating an intense race for resources like data centers and GPUs. Despite AWS's current struggles, he observed that being late to capitalizing on a tech trend does not always spell disaster, citing Meta's recovery after TikTok's rise and Google's resilience following the emergence of ChatGPT. Looking ahead, there are promising indicators for AWS. The platform recorded its second-best quarter for net new dollar growth recently, and although capacity constraints persist, they are gradually improving. Shmulik pointed to AWS's partnership with AI startup Anthropic as a critical growth driver, especially with the launch of Project Rainier, which leverages Amazon's custom AI chips. Bernstein projects AWS revenue to grow by 18% this year, reaching $127 billion, with further growth anticipated in the coming years. Shmulik remains optimistic that AWS can shed its 'AI laggard' label, citing increased developer engagement and expecting a strong revenue performance in the upcoming quarters. As the tech community watches closely, AWS's ability to pivot and adapt in this evolving landscape could redefine its narrative during the AWS re:Invent conference later this year.