Amazon Will Spend Nearly A Year Of AWS Revenue On AI Investments – The Next Platform

Amazon Will Spend Nearly A Year Of AWS Revenue On AI Investments – The Next Platform

Source: The Next Platform

There is a bit of AI spending one-upmanship going on among the hyperscalers and cloud builders – and now the foundation model builders who are partnering with their new sugar daddies to be able to afford to build vast AI accelerator estates to push the state of the art in model capabilities and intelligence.

It looks like Amazon, through its Amazon Web Services cloud, is winning the AI budget bonanza game. On a conference call with Wall Street analysts going over the fourth quarter 2024 financial results for the Amazon conglomerate, chief financial officer Brian Olsavsky said this:

“Capital investments were $26.3 billion in the fourth quarter, and we think that run rate will be reasonably representative of our 2025 capital investment rate. Similar to 2024, the majority of the spend will be to support the growing need for technology infrastructure. This primarily relates to AWS, including to support demand for our AI services as well as tech infrastructure to support our North America and International segments.”

Later in the call, Olsavsky reiterated that the capital expenditure rate for Amazon in Q4 2024 would be sustained throughout 2025, and just in case you didn’t hear that right, that means that Amazon will spend north of $100 billion in property and equipment in 2025. Our best guess – and we have to guess because Amazon does not disclose this – is that more than 90 percent of that capital spending will go for AWS datacenters, and 90 percent of that spending will be for AI systems and the datacenters that wrap around them. If you do that math on that, it works out to $86 billion in AI datacenter spending in 2025, more or less.

As best we can figure from our own model, information technology has been an increasing portion of the Amazon capital budget since AWS was founded in 2006. It was tens of millions of dollars per quarter way back then, and quickly busted through hundreds of millions of dollars as the AWS cloud grew. Since the first quarter of 2008, Amazon has invested $469.7 billion in property and equipment, which is a staggering amount of money until you consider that this is the ballpark of what Amazon, Microsoft, Google, and Meta Platforms say they are going to spend on capital expenses in the current calendar year. (That’s $80 billion for Microsoft, $75 billion for Google, $65 billion for Meta Platforms, and $100 billion for Amazon.)

We think that Amazon shelled out $38.4 billion in IT infrastructure spending in 2023, and $30.1 billion of that was for AI servers and the datacenters that house them. The other $8.2 billion was for generic datacenters and the servers, storage, and switches inside of them. In 2024, we think this generic datacenter spending at Amazon (which means AWS) was up 13.2 percent to $9.3 billion, and AI datacenter spending at Amazon (again allocated to AWS) doubled to just under $60 billion. Amazon spent another $14.6 billion for fulfillment centers, transportation systems, and office space, which was down 4.7 percent.

This model has a bunch of witchcraft in it, we concede, and we made some assumptions about how to apportion this. If we ran the Securities and Exchange Commission, such disclosures would be done as a matter of course because you need such granularity in financials to make investment decisions.

The amazing thing about the size of the 2025 capital expense budget for Amazon is that it on the same order of magnitude as the company’s AWS cloud revenues in 2023, which came in at $90.76 billion. In 2024, annual revenues at AWS rose by 18.5 percent to $107.6 billion. Way back in February 2019, we were said that AWS would certainly break $100 billion in annual sales in 2026, which would have been the 20th anniversary of the launch of the bookseller’s cloud division, and thanks to the AI revolution and a strong push to move enterprises to the cloud, Amazon has beat that projection by two years.

By the way, just for fun, here is the chart we did for revenue projections, and we said Scenario Three was the most likely, where growth would step down gradually:

In that model above, Scenario Three, which we chose as the most likely future path for AWS sales, had AWS revenue at $98.8 billion in 2023 and at $123.5 billion in 2024. So, Jeff and Andy, good job, you almost met our expectations. . . .

The thing that has us scratching our heads is that the investment in AI gear each quarter and each year is larger – and considerably larger at that – than the operating income of AWS for those times. The ratio of IT investments to operating income averaged 1.72X in 2024 and averaged 1.58X in 2023; sometimes, the ratio is twice as large. In Q4 2024, for instance, that ratio of IT spending for AWS to operating income for AWS was 2.3X, for instance.

How is this sustainable? Well, you have to spend money to make money.

For AI servers and the datacenters that wrap around them, as we have shown here, for every $1 you spend for an AI cluster and its datacenter (including its power and cooli

Read more: Click here