Amazon chief executive officer Andy Jassy on Thursday, April 10, released his annual shareholder letter, in which he predicted that rapid advances around artificial intelligence along with increasing competition in the chip market will eventually bring down the costs associated with this cutting-edge technology.
Mr. Jassy stated that machine intelligence does not have to be as expensive as it is currently, and will not be so in the future. According to him, more price-performant chips and improvements in model distillation, prompt catching, computing infrastructure, and model architectures will over time reduce the cost per unit of artificial intelligence. He stated that this will unleash AI being used as expansively as customers desire. Andy Jassy likened it to the company’s cloud juggernaut, which brought down the cost of computing and storage, leading to more invention, better customer experiences, and more absolute infrastructure spending.
This year, Amazon has allocated up to $100 billion for capital expenditures. A significant part of these funds is intended to finance the implementation of projects related to artificial intelligence. The company demonstrates a high level of intensity in the context of investing in data centers, networking gear, and hardware to meet the huge consumer demand for generative machine intelligence. There is currently a so-called artificial intelligence boom in the world. The debut of ChatGPT from OpenAI in 2022 became a kind of initial stage of the corresponding process. This chatbot has demonstrated impressive capabilities related to processing huge amounts of information and generating original content based on user prompts. Also, in the context of the impact on the situation in the technology sector, the special significance of ChatGPT lies in the fact that the mentioned virtual product demonstrated the specific practical benefits of artificial intelligence and the suitability of AI for mass use. Currently, all major global technology giants are actively involved in the so-called machine intelligence race.
Amazon has been an e-commerce giant for many years. At the same time, in recent years, the company has become one of the largest players in the global technology sector. Amazon has introduced several products related to artificial intelligence. In this case, among other things, it means a set of AI models called Nova. Amazon also presented Trainium chips. Moreover, the company has launched a shopping chatbot. Amazon’s digital ecosystem also includes Bedrock, a marketplace for third-party artificial intelligence models. Besides, the company has updated its Alexa digital assistant. This virtual product has received generative artificial intelligence features.
Andy Jassy became Amazon’s chief executive officer in 2021. He aimed to streamline the company’s vast business footprint and bring costs in check. At the same time, his business strategy included increasing investments in some areas.
In recent years, Amazon has reduced the number of employees. In 2022 and 2023, the company laid off more than 27,000 people. Smaller rounds of job cuts were held last year. The corresponding process will continue in the current year. The company also winds down some of its most experimental or unprofitable initiatives. In this case, it means, among other things, the Try Before You Buy clothing service, a TikTok-like video feed, and a speedy brick-and-mortar delivery program.
Andy Jassy stated that Amazon should continue to operate like the largest startup in the world, which moves quickly without bureaucracy, is scrappy, and is willing to take risks.
In September, Mr. Jassy, as part of a broader return-to-work mandate, stated that the company would simplify its corporate structure. He set a goal to increase the ratio of individual contributors to managers by 15% by the end of the first quarter of the current year. As part of this intention, Andy Jassy created the bureaucracy mailbox. On Thursday, Mr. Jassy reported that he had received almost 1,000 emails from employees describing examples of bureaucracy. According to him, the company has made more than 375 changes based on that feedback. Andy Jassy stated that builders hate bureaucracy. According to him, it slows them down, frustrates them, and keeps them from doing what they came here to do. He also noted that leaders don’t always see the red tape buried deep in their organizations, but they can sure eliminate it when they do.
Moreover, during a conversation with media representatives this week, Andy Jassy stated that Amazon is still digesting the impact of the sweeping tariffs of United States President Donald Trump. In this context, he noted that the company’s vast network of third-party sellers may pass that cost on to consumers.
Amazon’s third-party marketplace is made up of millions of sellers, many of which are based in China or source their products from this Asian country. Third-party sellers currently account for about 60% of all goods sold on the e-commerce giant’s website.
Andy Jassy stated that the company has implemented several strategic forward inventory buys. Also, according to him, Amazon is looking to renegotiate terms on some purchase orders in an effort to keep prices low.
It is worth noting that this week the e-commerce giant began to cancel some direct import orders for products sourced by vendors in China. The reason was the increase in US tariffs on goods imported from an Asian country.
Some vendors of home goods and kitchen accessory items had products ready for pickup by Amazon at shipping ports, only to receive a notification via an internal system, called Vendor Central, that their orders were canceled.
According to Andy Jassy, the company has seen some signs that consumers stock up on items in anticipation of price increases. At the same time, he noted that it is too early to make any statements about the extent of the mentioned behavior. In this context, Andy Jassy stated that people have not stopped buying. Also, according to him, in some categories, the company does see people buying ahead. He said that so far it is difficult to say whether this is just an anomaly in the data, since this tendency has been observed for only a few days, and it is unknown how long it will last.
US tariffs and trade countermeasures from other countries could potentially increase the costs for businesses building infrastructure to meet the growing demand for artificial intelligence, such as data centers. Amazon’s cloud computing business has benefited greatly from the mentioned demand.
Andy Jassy said Amazon Web Services (AWS) began the process of diversifying its supply chain about five years ago. According to him, this allowed AWS to source components from multiple markets, rather than just from one country. He also noted that the company has no plans to slow down the buildout of new data centers.
In his annual shareholder letter, Andy Jassy stated that 2024 was a strong year for Amazon. The company’s overall revenue for the mentioned period was recorded at the $638 billion mark. This indicator showed an increase of 11% year-on-year.
AWS revenue for 2024 was recorded at the $108 billion mark. This figure increased by 19% compared to the reading in 2023. Andy Jassy drew special attention to the fact that ten years ago, AWS’s annual revenue was $4.6 billion.
The company’s operating income for 2024 was recorded at the $68.6 billion mark. This indicator increased by 86% year-on-year. Free Cash Flow adjusted for equipment finance leases totaled $36.2 billion last year. In 2023, this figure was recorded at the $35.5 billion mark.
Andy Jassy also stated that Amazon’s Store business substantially expanded its selection, continued lowering prices and for the second year in a row, the company shipped at record speed to its Prime members. It was also noted that the independent research firm, Profitero, found Amazon the lowest-priced online US retailer for the eighth year in a row.
In general, the e-commerce giant is currently demonstrating positive financial performance and at the same time continues to strive to be a significant player in the global technology sector, which in this case reflects the importance of artificial intelligence as an advanced technology of modernity. It is still unknown whether the company will be able to cope with such a challenge as a tariff war, which is gradually becoming a fact of reality and is moving away from the category of probabilities. Amazon is betting on cutting-edge technologies that contain significant potential, which increases the likelihood of positive prospects for the e-commerce giant. At the same time, the high turbulence currently observed in the global economy against the background of tariff confrontation between countries may cancel out many prospects. However, this is a likely, but not an inevitable scenario.
As we have reported earlier, Amazon Tests Third-Party Product Discovery Feature.
