Amazon Just Delivered Mind-Boggling News to Shareholders
Key Points
Amazon Web Services (AWS) is a major player in the AI space, delivering a $150 billion annual revenue run rate.
Customers are flocking to AWS’ variety of chips and related products.
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Amazon (NASDAQ: AMZN) has been one of the early winners of the artificial intelligence (AI) boom, as a user and developer of the technology. Through its e-commerce business, the company has applied AI systems to its fulfillment network to increase speed and efficiency and has been offering AI tools to customers as they shop. At the same time, Amazon Web Services (AWS), the cloud business, designs and sells AI products to its customers.
All of this is supercharging revenue now, and it may boost profit and lower costs for the company over the long run. So, Amazon has already been benefiting from the AI story, but it's well-positioned to gain in the next chapters too. On top of this, the technology titan recently delivered mind-boggling news to shareholders. Let's check it out.
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Amazon's biggest profit driver
As mentioned, Amazon has two major businesses: e-commerce and cloud computing. Here, I'll focus on the latter as this is where Amazon is likely to excel in the AI market over time. And, importantly, it's also the company's biggest profit driver. In the latest quarter, AWS represented 60% of Amazon's total operating income.
AWS is the world's biggest cloud services provider, offering a broad range of non-AI and AI services. This dominance is a major plus, as customers who already use this cloud provider are likely to stick with it as they enter the era of AI. And Amazon has made AI a key point of focus so that it's ready to address all of these customers' needs.
One area that stands out in particular is chips. You may think of Nvidia when you think of this business since Nvidia is the market leader. The company makes the world's most sought-after graphics processing units (GPUs), those that have proven themselves to be the fastest around. And customers can turn to AWS for Nvidia systems -- so AWS benefits from Nvidia's growth.
At the same time, AWS has also been designing its own chips -- both central processing units (CPUs), which are the main processors in computers, as well as a GPU-style chip to power AI. Why is AWS doing this? For a few reasons. First, demand is so high that one company alone probably can't fulfill it. Second, customers have a variety of needs and, in some cases, look for a lower-cost option for certain tasks. Finally, by designing its own chips, AWS can save on capital expenditures. By scaling its Trainium AI chip, for example, the company says it will save tens of billions of capex dollars annually.
A transition is happening
As if that wasn't enough good news, Amazon offered investors even more during its quarterly earnings report a few weeks ago. A transition is happening right now, with AI shifting to the era of AI agents -- this is the software that actually puts AI to work, as it thinks through problems and carries out tasks. While the training of models relied heavily on GPU-style chips, AI agents also heavily use CPUs.
"Nobody has a better set of chips across AI and CPU workloads than AWS with Trainium and Graviton, and we are unusually well-positioned for this AI inflection," chief Andy Jassy said during the recent earnings call, referring to Amazon's AI chip and CPU, respectively. "We are in the early stages of the experience."
Meanwhile, Amazon also offers Nvidia's top GPUs -- so customers may turn to AWS for all of their AI needs. Since AWS has already delivered a $150 billion annual revenue run rate, the idea that we're in the early part of this growth story is mind-boggling.
Of course, AWS faces competition from other cloud providers, including market giants like Microsoft, as well as smaller, AI-specialized players like CoreWeave. But AWS' well-established offering of house-designed chips, as well as its portfolio of chips from others such as Nvidia, offers it a competitive moat. It would be difficult for others to completely and quickly replicate such a portfolio. All of this is fantastic news for shareholders, suggesting that Amazon may have many quarters of spectacular growth ahead.
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
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