Amazon has seen AWS growth rates drop substantially over the past three quarters, from 20% to 16% to 12% in Q2023 XNUMX. That's not the kind of trend anyone wants to experience, but especially for a division like AWS, which has been a growth driver for Amazon over the years. Still, Amazon CEO Andy Jassy believes the company could have turned a corner in its cloud business, as he puts those results into context.
“While customers have continued to optimize their cloud spending during the second quarter, we began to see more customers shift their focus toward driving innovation and bringing new workloads to the cloud. As a result, we have seen AWS's revenue growth rate stabilize during the second quarter, where we reported 12% year-over-year growth,” Jassy told analysts.
Chief Financial Officer Brian Olsavsky, who had warned analysts at his February meeting that growth was falling into the teens, was much more optimistic this week, especially given the outlook for future revenue the company believes it will eventually generate from of interest in generative AI.
“I would add that we saw the trends from the second quarter continue into July. So, overall I feel like the business has stabilized, and we're looking forward to the end of the year because, as Andy said, there's a lot of new functionality coming out, and there's a lot of spending that's going to be in this area to learn about all the great solutions that they exist for generative AI and long language models, as well as the machine learning solutions we've always had for customers. So we are optimistic and starting to see good traction with the new volume from our customers,” Olsavsky said.
Jassy points out that, given the size of the company, it continues to grow quite strongly, even not growing at the rate of previous years.
“If you think about the AWS business as an $88 billion revenue run rate business, to grow double digits in a business of that size with the amount of cost optimization that's been happening, to grow double digits, you have to be adding a lot of new customers and a lot of new new workloads just to grow those double digits,” Jassy said.
And you see AI, which even before the growing popularity of generative AI, was a decent business. “What I would say is that we have had a very significant amount of business on AWS powered by machine learning and AI for several years. And you've seen it largely in compute form, as customers have done a lot of machine learning training and then run their models and production on AWS and our compute instances,” he said.
He says that while generative AI is still in the early stages, it has the potential to generate many more businesses over time.
All that said, Olsavsky also didn't offer guidance for AWS's third quarter, so it begs the question of whether he's really as bullish as he and Jassy suggest, at least in the near term.
However, in the long term, it would appear that AWS still has plenty of room to grow in the coming years, especially with many workloads still to be moved to the cloud, and the promise of building applications on top of large language models continuing to drive the business.
