Dive Brief:
- E-commerce company Amazon will follow the path of other large-scale technology companies by turning its eye to emerging technologies, including upping its investments in its Amazon Web Service cloud segment as well as in artificial intelligence, executives said Thursday during the company’s Q1 earnings call.
- Amazon is “adding more dollars” to these technology areas as it reduces spending in areas like its core fulfillment and transportation areas, CFO Brian Olsavsky said during the call in response to analyst questions about its capital expenditure expectations for 2023.
- For full year 2023, Olsavsky expects the company’s capex will be less than the $59 billion it spent for 2022, with the company continuing to put funds into key areas like AWS customer needs as well as “investments to support large language models and generative AI,” he said.
Dive Insight:
AI’s potential was a prominent topic of discussion on the e-commerce behemoth’s earnings call, with Amazon following in the footsteps of other technology companies like Apple and Meta in exploring the technology’s use for its various business segments, including for its AWS cloud offering.
The company is “not close to being done investing in AWS,” Amazon CEO Andy Jassy said, pointing to Amazon’s continuing investments on generative AI and machine learning which could come to play a significant role in this space.
“In my opinion, few folks appreciate how much new cloud business will happen over the next several years from the pending deluge of machine learning that’s coming,” Jassy said.
The Seattle, Wash.-based company’s AWS segment saw a 16% year-over-year boost in sales for its first quarter ended March 31 to reach $21.4 billion, according to the company’s earnings results.
AI has continued to captivate executives’ attention, with Facebook parent Meta planning to prioritize hiring related to the technology and other key areas even as it recoups from a round of layoffs, CFO Susan Li said during the company’s quarterly earnings call earlier this week.
Experience with AI is also quickly turning into a hot commodity when it comes to future job opportunities, with a recent study by ResumeBuilder finding that out of 1,187 business leaders, 91% of those currently hiring are looking for workers with ChatGPT experience.
While technology’s future benefits continue to captivate employers, many businesses are also growing more cautious when it comes to spending in such areas. Inflation continues to be a key factor for Amazon, Olsavsky said, with consumers growing more cautious with their spending and looking to stretch their budgets further, he said, including when it comes to their cloud needs.
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter,” Olsavsky said. April’s revenue growth rate slumped approximately 500 basis points compared to what the company saw for its cloud segment in Q1, he said.
While cloud spending for the company may have wobbled this month, Jassy stressed that the company’s enterprise customers are focusing on “cost optimizing rather than cost-cutting” — an “important distinction because they say they’re cost optimizing to reallocate those resources on new customer experiences,” he said on the earnings call.
One of the prime advantages of the cloud, in fact, is its ability to be scaled up and down based on need, which cannot be done with on-premise tools, Jassy said. Over 90% of IT spending is still on-premises, he said, which presents a grand opportunity for the cloud.
“If you believe that equation is going to flip, which we do, it’s going to move to the cloud,” he said.
Amazon itself took several steps to streamline its own costs in response to murky economic conditions, including announcing its intent to cut 9,000 jobs which impacted its AWS, Twitch, devices and advertising segments, as well as its human resources team, Olsavsky said. This brings the company’s total number of job cuts up to 27,000 for 2023, according to reports.
