Amazon to cough $75B on capex in 2024, more next year

Amazon expects to spend $75 billion on capital expenditure in 2024 and even more in 2025 – mostly on its cloud computing business – due to rising demand for generative AI and as more customers ditch their on-premises workloads.

The web services arm of Amazon (AWS) reported calendar Q3 net sales of $27.45 billion, up 19 percent year-on-year, and operating expenses of $17 billion, up from $16.08 billion. Operating profit jumped almost 50 percent to $10.45 billion.

In a contradiction to the message delivered to the UK's Competition and Markets Authority in its probe into the health of the local cloud market, AWS told investors last night that its business just keeps on expanding.

"We see more enterprises growing their footprint in the cloud, evidenced in part by recent customer deals with the ANZ Banking Group, Booking.com, Capital One, Fast Retailing, Itau Unibanco, National Australia Bank, Sony, T-Mobile, and Toyota," said Amazon CEO Andy Jassy, who previously ran AWS when Jeff Bezos headed Amazon.

"Companies are focused on new efforts again, spending energy on modernizing their infrastructure from on-premises to the cloud," he added. This helps customer orgs "save money, innovate more quickly, and get more productivity from their scarce engineering resources."

Just weeks back, AWS told the CMA that customers deciding to repatriate workloads from the cloud was providing stiff competition," and talked of the "attractiveness of moving back to on-premises." It said this to prove that customers don't face any difficulties in switching from its platform, one of the major tenets of the regulator's investigation.

Strange how tech businesses – not just AWS – bend their messaging to suit their audience. What really seems to be fueling continued expansion, according to Jassy, is customers plotting their steps to use generative AI, including training models.

"Our AI business is a multibillion-dollar business that's growing triple-digit percentages year over year and is growing three times faster at its stage of evolution than AWS did itself. We thought AWS grew pretty fast," said the CEO.

"The thing to remember about the AWS business is that the cash life cycle is such that the faster we grow demand, the faster we have to invest capital in datacenters and networking gear and hardware. And of course, in the hardware of AI, the accelerators or the chips are more expensive than the CPU hardware.

"We invest in all of that upfront in advance of when we can monetize it with customers using the resources. But, of course, a lot of these assets are many-year useful life assets. Datacenters, for instance, are useful assets for 20 to 30 years. And so I think we've proven over time that we can drive enough operating income and free cash flow to make this very successful return on invested capital business."

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Speaking of which, Jassy forecast an eye-watering amount of capex for AWS this year. "We expect to spend about $75 billion in 2024. I suspect we'll spend more on that in 2025. And the majority of it is for AWS and, specifically, the increased bumps here are really driven by generative AI."

Last year, capex was at a relatively paltry $48.4 billion. The company, like Microsoft and Google, extended the life of its servers. Amazon has 353 datacenters in 38 markets and another 45 sites being built, according to Baxtel.

As noted earlier this week, Steve Brazier, fellow at analyst Informa, estimated that hyperscalers have sunk $200 billion into capex since the start of last year, and all are feeling the squeeze from investors who want to see a return.

"With around $200 billion in capex, only about $20 billion of revenue is actually coming from consumers and businesses in terms of AI services, things like Copilot licenses and ChatGPT licenses, so a very poor return in true results in terms of end users. And the whole bet [whether] the AI explosion continues or not will depend on whether they can get that $20 billion up as quickly as they hope."

The race is on. ®