Customer demand guides Amazon’s AI infrastructure spending

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 10:46

   Yeah, I would say in the first wave of cloud, you know, when we started AWS, it was, I mean, there was a little bit of, we didn't know if people would use it, so build it and they will come. But we had very good signals inside the company, which at the time, you know, this was around the years, you know, the early part of the 2000s. We had teams that were not moving nearly as quickly as we wanted them to, even though we felt like relatively we moved quickly. But for us, we just couldn't understand why it took so long and it just turned out that our our product teams were spending 70 to 80 percent of their time on the infrastructure pieces which didn't differentiate them and only about 20 percent of their time on what differentiated the product pieces and so we you know and we realized every

2. 11:33

   team was doing it and reinventing the wheel and so we we originally conceived of aws to allow ourselves to move more quickly internally and uh we figured if we built a set of um high scale high availability, low cost, highly flexible building block services like compute and storage and database and content distribution, messaging, things like that, we would be able to build much quicker in our consumer business.

3. 12:00

   And then we just said we're pretty good, relatively speaking. Technically, probably other companies have the same issues. But even before we launched externally, we had so many teams internally interested that we knew we were on the right track. I don't think any of us anticipated it would grow as fast as it did externally. On the AI side, there were, you know, as you know, there have been these different waves of people saying, this is the time, AI is finally here.

4. 12:25

   And, you know, even maybe six, seven years before the gender of AI wave, people felt like it was AI's time. We built a whole bunch of AI services that actually was a pretty good business for us in the AWS side, but nothing like what we're seeing right now. Like in the early days of AWS, we felt like we were going really fast and we felt good about it. And we were about a $60 million annual run rate business after three years.

5. 12:53

   In the first three years of this genre of AI wave, our business, or just our AI business in AWS is over $25 billion in run rate. So it's several hundred times faster. So we just haven't seen anything like it. And then the question becomes, how much CapEx do you want to invest to go after the opportunity? And, you know, what I would tell you is, you know, we've said this year in 2026, we expect to spend about $220 billion of CapEx.

6. 13:26

   By the way, I'll just tell you that I remember being at leadership team breakfast, you know, 15 years ago when we couldn't believe the telco company spent $50 billion in CapEx. We're like, I'm really spending that much on CapEx. So these numbers are, you know, they're kind of mind-blowing numbers. And even spending $220 billion in CapEx this year, we're leaving a meaningful amount of demand on the table.

7. 13:51

   We just, the thing that helps us here is that we have really good visibility into customer demand. And so, if you think about the CapEx investments in AWS and the way the cash cycle works, there's two macro areas. There's the investment for data centers, and then there's the investment for servers and networking. The data center piece, you have to invest, you know, about two years in advance of when you can put servers in the data centers and start to monetize them.

8. 14:24

   The good news is you only make that investment once. It's a useful life asset. It's about 30 years. But you make that a couple years in advance. The server and networking gear, it's only a few, depending on the component, it's only a few months in advance. So you have very good visibility into customer demand before you pull that trigger. And if it turns out you don't actually need the capacity to fill those data centers, you won't buy the server networking gear.

9. 14:51

   That, on average, they, you know, they tend to break even in about three years. And they have useful lives at this point of about five to six years, and most of the deals we're doing are about five-year deals. And so when you are building as fast as we're building with so many data centers simultaneously, you're going to spend a lot of capital, and your free cash flow is going to have headwinds in those years until you get to those later stages, you know, a few years down the road where all those data centers are online and they're all being monetized and you're making back your money from the server and the network investment.

10. 15:27

    But it has, because of the way the cash cycle works, it has headwinds in the early years when you're growing that fast.