Amazon

Amazon, Built by Retail, Invests in Its AI Future

Author: Editors Desk, Sebastian Herrera Source: WSJ:

June 30, 2024 at 06:35

The Amazon data center in Aldie, Va. JAHI CHIKWENDIU/THE WASHINGTON POST/GETTY IMAGES

Amazon, now the fifth-ever U.S. company to reach $2 trillion in market value, is planning to spend more than $100 billion over the next decade on data centers for AI computing.

Amazon AMZN -2.32%decrease; red down pointing triangle built a $2 trillion company through years of aggressive spending on its retail and logistics businesses. Its future gains will likely be determined by the billions designated to fund its artificial-intelligence push.

Amazon is planning to spend more than $100 billion over the next decade on data centers, an impressive level of investment even for a company known for its spending ways. The Seattle company is now devoting more investment money to its cloud computing and AI infrastructure than to its sprawling network of e-commerce warehouses.

Amazon Web Services, the arm that manages Amazon’s cloud business, has opened data centers for years, but executives said there is a surge in investment now to meet demand triggered by the excitement around AI.

“We have to dive in. We have to figure it out,” said John Felton, who took over as AWS’s chief financial officer this year after spending most of his career in Amazon’s retail fulfillment operations.

Amazon is pouring billions into its AWS cloud business to meet demand from the growth of artificial intelligence. PHOTO: VERNON YUEN/NURPHOTO/GETTY IMAGES

The company’s financial commitment reflects the importance and high costs of AI. Felton said building for AI today feels like building that massive delivery network in years past. “It’s a little uncertain,” he said. AWS is expanding in Virginia, Ohio and elsewhere.

The company’s overall capital expenditures decreased last year primarily because it reined in fulfillment and transportation spending, but the share of that spending on infrastructure mostly for AWS has surged. The increase represents a new era of expansion for Amazon, in which investing in cutting-edge cloud equipment is more critical to its growth than developing its network of retail warehouses.

Amazon’s spending on data-center capital expenses, including leases, compared with total capital expenditures hit a decade-high last year of 53%, according to market-research firm Dell’Oro Group. Amazon said it expects AWS infrastructure spending to remain high this year, and the company has announced many AWS investments in recent months.

Amazon’s cloud business has long been the company’s profit engine, and AI is expected to catapult demand for cloud computing to new heights. Executives are aiming to take advantage of the AI boom, which relies on cloud services because of the intensive computing resources required. Amazon expects tens of billions of dollars in revenue from AI in the next several years.

An Amazon Web Services data center in Hilliard, Ohio, part of the cloud-computing infrastructure Amazon is building. PHOTO: BRIAN KAISER/BLOOMBERG NEWS

“We’re just keeping our heads down and focusing on delivering that capacity right now,” said Kevin Miller, AWS vice president of global data centers.

Amazon’s shift represents the changing needs of a company that, despite having the world’s leading cloud-computing business and years of experimenting with AI, is seen by some experts as trailing in AI behind its big tech peers. Amazon has said it isn’t falling behind others in AI and its AI capabilities at AWS have been well-received by customers.