Amazon Q3 2023 Results: CEO Jassy Highlights Partner Role In AWS Growth In Cloud, AI
Wade Tyler Millward
‘We have a much larger partner ecosystem than you’ll find elsewhere,’ Amazon.com CEO Andy Jassy says.
The Amazon Web Services partners are part of the reason the CEO of the cloud giant’s parent organization feels “very optimistic” about AWS’ continued performance in the market and they will play a role in the emerging world of generative artificial intelligence, Andy Jassy told listeners on Amazon.com’s latest quarterly earnings call.
Although AWS continues to see customers “optimizing” current spending with the cloud giant – a trend also described by its cloud rivals since the height of the pandemic and amid high inflation in the United States – the vendor notably saw the end of a six-quarter deceleration in AWS growth, the company reported on Thursday’s earning call for the third fiscal quarter, ended Sept. 30.
“We have the most functionality by large amount,” Jassy told listeners on the call. “We have a much larger partner ecosystem than you’ll find elsewhere. We have stronger security and operational performance than you’ll find elsewhere.”
AWS Q3 2023 Results
AWS has about 100,000 worldwide channel partners, according to CRN’s 2023 Channel Chiefs. Its chief cloud rival, Microsoft, has about 400,000. AWS is commonly considered the largest cloud provider with Microsoft at No. 2.
AWS sales grew 12 percent year over year to $23.1 billion, less than the 13 percent some expected but the same as the prior quarter, an end to ending declining quarter-over-quarter growth that started with the first quarter of the 2022 fiscal year.
Jassy said that AWS has seen “an attenuation of optimization over the last several months,” with customers “turning their attention to newer initiatives.” Over the next several years, customers will look at new generative artificial intelligence (GenAI) workloads. Customers will also restart projects to move on-premises workloads to the cloud that stalled in 2023 – a benefit to AWS partners.
“What you’ll see increasingly is that companies will both go back to the transformations they were planning on making working with a lot of system integrator partners as well as ourselves, as well as start to see the production and large scale of the generative AI applications that they’re all working on prototyping and starting to deploy into production,” Jassy said.
Amazon traded at about $125 a share after hours, up about 5 percent.
AWS Customer Behavior
AWS added $919 million in incremental revenue quarter over quarter, Jassy said. He called it “the most absolute growth of any of the players out there” while criticizing unnamed cloud rivals for not disclosing cloud revenue numbers “clearly.”
Although customers are still cautious with spending, “it’s not all customers deciding to shut down workloads,” he said.
Customers are taking advantage of enhanced AWS price performance capabilities in AWS, he said, including using Amazon Elastic Compute Cloud (EC2) instances that are based on Amazon’s Graviton chip.
“The number of people and the percentage of instances launched that are Graviton based as opposed to Intel or AMD based is very substantially higher than it was before,” Jassy said. “And one of the things that customers love about Graviton is that it provides 40 percent better price performance than the other leading x86 processors.”
The worldwide chip shortage has also put more importance on Gravitron. “We’ve done a pretty good job providing supply there, ordering meaningfully in advance as well,” he said. “You’re seeing very large LLM (large language model) providers make big bets on those chips.”
Customers have also moved from hourly on-demand rates for significant portions of their workloads to one- to three-year commitments, called “savings plans” by AWS.
“Those are just good examples of some of the cost optimization that customers are making in less-certain economies, where it’s really good for customers short and long term, and I think it’s also good for us,” he said.
About 90 percent of global IT spending is still spent on premises, showing the opportunity for cloud, he said. “I think that equation is going to flip in 10 years.”
He put the GenAI opportunity at “tens of billions of dollars in revenue for AWS over the next several years.”
He did not break out specific estimates for AWS’ GenAI business, only saying it “compares very favorably with anything else I’ve seen externally.”
“There’s a lot of growth in front of AWS,” he said. “I’m very optimistic about it.”
When asked about how soon AWS will see revenue from GenAI, Jassy said, “We have been surprised at the pace of growth in generative AI” and that “it’s a pretty significant business for us already.”
“Companies are still in the relatively early stages,” he said. “We have so many companies who are doing all sorts of prototypes. And it’s really accelerated very rapidly.”
Customers are still figuring out what to run at large-scale production, he said. For some customers, they are finding that after training models, testing them and plugging them into applications, the end result can be more expensive than anticipated and come with using large models and large sizes in an application can have high latency in answer-generation.
This phenomenon has been an opportunity for Amazon’s Bedrock fully managed service for foundation models, he said.
Customers have also wrestled with making sure GenAI produces accurate results, safe ones and the desired customer experience, he said.
“It’s hard,” he said. “There’s a certain number of customers who have very deep AI expert practitioners, but most companies don’t.”
AWS views the AI opportunity in three layers, with AWS competing in all three. The lowest is the compute to train LLMs and produce inferences and predictions. The middle layer is LLMs-as-a-service. And the top layer is the applications on top of the LLM, Jassy said.
Amazon Q3 In Detail
AWS operating income was $7 billion, up about 30 percent year over year, according to the company. AWS’ annualized revenue run rate is $92 billion.
The parent company’s operating cash flow grew 81 percent to $71.7 billion for the trailing twelve months.
The parent company had about $49.6 billion in cash and cash equivalents at the end of the quarter, according to Amazon.