Amazon CEO: 85 Percent Of ‘IT Spend Remains On-Premises,’ Gen AI Will Fuel AWS Cloud Sales

“We’re at $100 billion-plus annualized revenue run rate, yet 85 percent or more of the global IT spend remains on-premises,” said Andy Jassy, Amazon’s CEO and former longtime leader of AWS.

Amazon’s CEO Andy Jassy says AWS’ generative AI strategy is accelerating companies to ditch their on-premises IT environments in favor of the cloud, with massive opportunities ahead due to tech budgets still focused mainly on-premises.

“We remain very bullish on AWS. We’re at $100 billion-plus annualized revenue run rate, yet 85 percent or more of the global IT spend remains on-premises,” said Jassy (pictured) during Amazon’s Q1 2024 earnings report last week. “And this is before you even calculate gen AI, most of which will be created over the next 10 to 20 years from scratch and on the cloud. There is a very large opportunity in front of us.”

On-premises data center capacity is being increasingly dwarfed by cloud hyperscale data centers—which are owned or leased by cloud market leaders like AWS, Google and Microsoft, according to IT research firm Synergy Research Group.

In fact, only 40 percent of global data enter capacity was in on-premises data centers as of 2023, compared to 37 percent of capacity in hyperscale owned or leased data centers.

“This is a stark contrast to five years ago when almost 60 percent of data center capacity was in on-premises facilities,” said Synergy in its data center capacity report. “Looking ahead to 2027, hyperscale operators will account for over half of all capacity, while on-premises capacity will drop to under 30 percent.”

Andy Jassy: Generative AI Biggest Opportunity ‘Since Cloud, Perhaps Since The Internet’

This data center capacity trend bodes very well for AWS, who is pouring billions of dollars each year into building new data centers that power its ever-growing generative AI and cloud services portfolio.

“What people sometimes forget on the AWS side—it’s a $100-billion revenue run rate business—but we’re still 85-plus percent of the global IT spend is on-premises. If you believe that equation is going to flip, which we do, it means we have a lot of growth in front of us,” Jassy said.

“And that’s before the generative AI opportunity, which I don’t know if any of us have seen a possibility like this in technology in a really long time—for sure since the cloud, perhaps since the Internet,” he added.

Worldwide enterprise spending on cloud infrastructure services reached a record $76 billion during the first quarter of 2024, representing an increase of 21 percent or $13.5 billion year over year.

Amazon is ranked No. 1 in global market share with 31 percent share, followed by Microsoft at 25 percent share, then Google Cloud at 11 percent share. AWS, for its part, generated $25 billion in sales during the first quarter of 2024, up 17 percent year over year.

AWS Partner: ‘AI Is The Perfect Use Case For The Cloud’

Ethan Simmons, managing partner of Norwood, Mass.-based PTP, a top-notch life sciences AWS partner, agreed with Jassy’s belief that AI is an ideal use case for cloud computing.

“It would be crazy to try and build the infrastructure to support an on-premises AI environment. The technology is moving too fast, and the infrastructure costs are astronomical,” said Simmons. “As soon as you buy GPUs and implement them, they are obsolete.”

Simmons said, “AI is the perfect use case for the cloud. It offers unlimited flexibility to experiment and fail fast without any OPEX cost. The cloud was built to support AI applications.”

Jassy, who led AWS when the Seattle-based cloud company launched in 2006, said 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. All of this generative AI set of workloads will transform every experience that’s going to be built from scratch on the cloud largely,” Amazon’s CEO said. “So it’s just tremendous opportunities there along with some of the other areas that we’re investing and that are in really its early stage.”

Amazon Pouring Billions Into Data Centers To Power AI Vision

To fuel its generative AI and cloud computing strategy, Amazon is spending billions of dollars each year to expand its cloud data center footprint with the goal of reaching new customers both in America and across the globe.

For example, on Tuesday, Amazon announced it will invest nearly $9 billion to expand its cloud computing infrastructure and data centers in Singapore.

In April, AWS said it would invest $11 billion in building a new cloud data center campus in Indiana. In March, AWS acquired a data center campus from Talen Energy in Pennsylvania for $650 million. And in 2023, AWS said it would invest $9 billion to enhance its Australia-based data centers.

The number of large data centers operated by hyperscale providers surpassed the 1,000 mark in early 2024, Synergy said. It has taken just four years for the total capacity of hyperscale data centers to double as the number of data centers and average capacity continues to climb.

“There are really unbelievable growth opportunities in front of us,” said Jassy.