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Amazon grew into a $2 trillion company by heavily investing in its retail and logistics sectors over the years. Its future success will likely depend on the billions it is now allocating towards developing artificial intelligence.
Amazon intends to invest over $100 billion in data centers over the next ten years, which is notable even for a company renowned for its spending. The Seattle-based company is now channeling more funds into its cloud computing and AI infrastructure than its extensive network of e-commerce warehouses.
Amazon Web Services, which oversees Amazon's cloud operations, has been launching data centers for years. However, executives note that there is currently a significant increase in investment to meet the heightened demand driven by the excitement surrounding AI.
John Felton, who became AWS’s chief financial officer this year after spending most of his career in Amazon’s retail fulfillment operations, emphasized that they need to fully commit and find solutions.
The company's financial investment underscores the significance and high expenses associated with AI. Felton compared the current AI development to the construction of their extensive delivery network in the past, acknowledging the uncertainty involved. AWS is expanding its presence in Virginia, Ohio, and other locations.
Last year, the company's overall capital expenditures declined mainly due to reduced spending on fulfillment and transportation. However, the portion of spending on infrastructure, primarily for AWS, has significantly increased. This shift marks a new era of expansion for Amazon, where investing in advanced cloud technology is now more crucial for growth than expanding its retail warehouse network.
According to market-research firm Dell’Oro Group, Amazon's spending on data-center capital expenses, including leases, reached a decade-high of 53% of its total capital expenditures last year. Amazon expects AWS infrastructure spending to remain high this year and has announced numerous AWS investments in recent months.
Amazon’s cloud business has traditionally been the company's primary source of profit, and the growing demand for AI is expected to significantly boost the need for cloud computing. Executives plan to capitalize on the AI surge, which depends on cloud services due to its high computational demands. Amazon anticipates earning tens of billions of dollars in AI revenue over the next several years.
Kevin Miller, AWS vice president of global data centers, stated that they are currently concentrating on providing the necessary capacity.
Amazon's strategic shift reflects its evolving needs. Despite being the leader in cloud computing and having years of AI experimentation, some experts believe Amazon lags behind other major tech companies in AI. However, Amazon maintains that it is not trailing in AI, and its AI capabilities at AWS have been positively received by customers.
Amazon has a track record of significant spending to maintain its competitive edge. This included substantial investments in delivery infrastructure over the years to solidify its position in e-commerce, and later, to manage surging demand during the Covid-19 pandemic.
The substantial investment helped Amazon achieve a significant milestone last week, becoming only the fifth U.S. company ever to reach a market value of $2 trillion. As of Friday's closing, the stock price was $193.25, placing the company's value at $2.011 trillion.
Amazon's heightened emphasis on data centers is evident in its senior leadership, which now includes more individuals with backgrounds in the cloud business. Andy Jassy, who led AWS for over two decades, assumed the role of Amazon's CEO in 2021.
Cayce Roy, CEO of e-commerce fulfillment company Standvast and a former Amazon vice president, commented that there's a natural inclination to prioritize investment in AWS and technology because that's what the team has developed and cultivated over time.
According to Marc Wulfraat, president of logistics consultant MWPVL International, Amazon intends to construct at least 216 new data-center facilities in the coming years. He also noted that Amazon's investments in retail infrastructure are unlikely to increase significantly through 2025, partly due to excess capacity built during the pandemic.
Due to the high demand for AI infrastructure, Amazon and other tech firms have faced challenges in securing the components, real estate, and energy necessary for data centers with supercomputing capabilities. To meet their energy demands, Amazon and other major tech firms have explored nuclear power options. Unlike their fulfillment infrastructure, which was built over many years without needing the same advanced technical equipment, data centers require specialized setups.
Under Jassy's leadership, Amazon has shifted its focus across its businesses towards AI products. Jassy has highlighted generative AI as a potentially crucial component of Amazon's future growth, alongside its online retail operations, Amazon Prime, and AWS.
In May, Amazon appointed Matt Garman, an experienced executive with a robust engineering background, as the new CEO of AWS, aiming to enhance its AI capabilities.
Amazon remains the dominant leader in online retail in the U.S., with recent financial reports indicating its strong and stable position. The company remains committed to expanding its retail operations and opening additional delivery centers. To better compete with newer e-commerce rivals, Amazon has bolstered its shipping infrastructure, enabling faster delivery to more Americans.
Felton emphasized the importance of seizing the AI opportunity now. He described the current moment as exciting, where there's a chance to innovate in cloud computing and redefine customer service in the realm of GenAI, which stands for generative artificial intelligence.