Amazon Stock Investors Just Got Fantastic News From CEO Andy Jassy
Amazon CEO Andy Jassy announced a long-term forecast for Amazon Web Services (AWS), predicting it could generate $600 billion in annual revenue over the next decade, driven by the AI boom. Jassy emphasized the company's commitment to investing $200 billion in capital expenditures, primarily in AWS, to meet the growing demand for AI capabilities. AWS, which generated $128.7 billion last year, would need to grow by 17% annually to reach the $600 billion target. This positions Amazon favorably in the AI-driven market.
The past few years have been a nonstop thrill ride for Amazon (AMZN 1.81%) shareholders. The company was able to leverage its industry-leading position in cloud computing to become a leader in the artificial intelligence (AI) boom. By positioning Amazon Web Services (AWS) as an AI marketplace, the company was able to reignite its cloud growth, which has been crucial to Amazon's ongoing success.
CEO Andy Jassy just provided a stunning long-range forecast that, if accurate, could have significant implications for the company's future, much to the delight of Amazon shareholders.
Image source: The Motley Fool.
AWS revenue of $600 billion
During an internal all-hands meeting on Tuesday, Jassy laid out his vision for the future, with AWS leading the charge. The chief executive believes that AWS could generate $600 billion in annual revenue over the next 10 years, according to a report first published by Reuters.
He noted that before the AI revolution, he had pictured AWS eventually achieving a run rate of $300 billion. However, the advent of AI has had a profound effect on the tech landscape, with cloud computing customers clamoring for access to AI models and tools to increase workforce productivity. The resulting increase in demand has Jassy rethinking his original estimates. "I think with what's happening in AI, AWS has a chance to be at least double that," he said.
Amazon has been crystal clear about its growth prospects in the coming years and is spending heavily to stake its claim in an AI-driven future. When the company reported its fourth-quarter results last month, Jassy unveiled Amazon's plans to continue to capitalize on the AI revolution:
We expect to invest about $200 billion in capital expenditures (capex) across Amazon.com, Inc., but predominantly in AWS, because we have very high demand. Customers really want AWS for core and AI workloads. And we are monetizing capacity as fast as we can install it.
That last sentence helps illustrate that Amazon is capacity-constrained and building to meet demand that already exists.
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Key Data Points
Jassy explained the logic behind the decision, suggesting that AI is a "very unusual opportunity" that allows the company to capitalize on its cloud strength and expand its existing business. Furthermore, he notes that the company is building out its data center footprint to meet existing demand. "We're not just spending $200 billion of capex because we're hoping AI is going to be big," he insisted.
Jassy went on to point out the lag between when the company contracts a data center and when it's up and running. "We have to lay all that out a couple of years in advance of when we're going to monetize," he said.
While Jassy's pronouncement may be eye-catching, the mathematical path to that benchmark is fairly straightforward. Last year, AWS grew 20% year over year, generating sales of $128.7 billion. With that as a starting point, the segment would need to grow its cloud revenue by 17% annually to surpass $600 billion in annual sales within the next decade.
Amazon has taken all the necessary steps to capitalize on the growing demand for AI, and the company is well-positioned to profit. And at 29 times earnings, the price is right.
