Obliterating my way-off forecast of 13% growth for Q1, AWS delivered an outstanding Q1 bolstered by several vital achievements:
- revenue growth accelerated to 17%, marking a massive rejuvenation from the figures for the previous three quarters of 12% for Q2, 12% for Q3, and 17% for Q4;
- topped $25 billion in quarterly revenue for the first time;
- for its fledgling AI business, generated a “multibillion-dollar run rate”; and
- inspired Amazon CEO Andy Jassy to predict that “tremendous opportunities” await AWS in cloud and AI.
Over the past 18 or so months, I’ve been a fairly vocal critic of AWS’s performance because during that time its growth rate fell so far behind those of high-flying competitors Microsoft, Google Cloud, and Oracle. And while the AWS Q1 growth rate of 17% still lags far behind those for the cloud businesses of Microsoft (23%), Google Cloud (28%), and Oracle (25%), the jump from Q4’s 13% to Q1’s 17% is a clear indication that AWS has stepped back into its big-boy shorts and is ready to compete forcefully for the massive new market for AI plus cloud transformation.
So I owe it to AWS and its leaders to not only acknowledge their impressive Q1 turnaround but also admit that I really laid an egg with my forecast of Q1 growth of 13%. Okay, enough about me and my blunder.
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‘Tremendous Opportunities’: Jassy
On Amazon’s April 30 earnings call, Jassy who can be considered the founder of AWS back in 2006 and was its leader until being promoted to CEO of parent company Amazon in January 2022 —offered an insightful perspective on not only the size of the cloud plus AI market but also on its relative youthfulness. That’s a point that some of us inside the industry can tend to take for granted — but Jassy framed it in a way that shows that the cloud, for all of its growth and impact, is still something of a callow teenager.
“And I think what people sometimes forget on the AWS side, it’s a $100-billion revenue run-rate business, with more than 85% of global IT spending still going to on-premises,” Jassy said.
“And if you believe that equation is going to flip, which we do, then that means we have a lot of growth in front of us, and that’s even before the generative AI opportunity. And I don’t know if any of us has seen a possibility like this in technology in a really long time — for sure since the cloud, and perhaps even since the Internet.”
Jassy then offered some context on how the enormous opportunities for cloud and AI differ.
“There’s a lot of work to be done to move from on-premises to the cloud. People do it and they get value out of it, which is why they modernize their infrastructure — but it’s work,” Jassy said.
“But all of this generative AI and these new sets of workloads, which will transform every experience, they’re going to be built from scratch largely on the cloud.
So there are just tremendous opportunities there, along with some of the other areas that we’re investing in, that are really early-stage.”
But none of the GenAI magic that customers are so eagerly pursuing will be possible without a solid and durable cloud foundation. So, as customers are diving into the AI Revolution, they’re also undertaking the essential if less glamorous work of ensuring their cloud infrastructure is up to the new challenges and requirements being imposed by those revolutionary forces.
“First, companies have largely completed the lion’s share of their cost optimizations and have turned their attention to newer initiatives,” Jassy said, describing a market dynamic that dogged AWS longer and more severely than it did rivals Microsoft and Google Cloud.
“Before the pandemic, companies were marching to modernize their infrastructure, moving from on-premises infrastructure to the cloud to save money, innovated at a more rapid rate, and to drive more developer productivity. The pandemic and uncertain economy that followed distracted from that momentum, but it’s picking up again,” Jassy said.
Final Thought
Okay — with all due respect to AWS’s very strong Q1, one strong quarter does not equate to a full-scale turnaround. But the fundamentals outlined by Jassy in the earnings call — not only renewed strong demand for cloud modernization but also very stong demand for AWS GenAI and traditional AI services — have given me reason to believe that the AWS upswing will continue.
Because, in Jassy’s own very insightful words, “I think what people sometimes forget on the AWS side, it’s a $100-billion revenue run-rate business, with more than 85% of global IT spending still going to on-premises,” Jassy said.
So, “tremendous opportunities” indeed.
Well done, AWS!
The AI Ecosystem Q1 2024 Report compiles the innovations, funding, and products highlighted in AI Ecosystem Reports from the first quarter of 2024. Download now for perspectives on the companies, investments, innovations, and solutions shaping the future of AI.
