AWS hopes for a savior in AI as revenue growth continues to slow

Revenue growth at Amazon’s cloud computing division, Amazon Web Services, continued to slow in the second quarter of fiscal year 2023 as enterprises pressed on with their cost-cutting measures.

Revenue for AWS increased 12% year-on-year in the second quarter to $21.4 billion. However, Amazon CEO Andy Jassy said enterprises subscribing to AWS services have “needed assistance cost optimizing to withstand this challenging time.”

Revenue growth for AWS continued to be on a constant decline. The 12% growth in the second quarter is slower than the 16% and 20% growth seen in the first quarter of 2023 and the fourth quarter of 2022, respectively. For the third and second quarter of 2022, AWS reported that its business grew by 27.5% and 33% respectively.

AI workloads key to fuel growth momentum

Top executives at the company predicted the revenue growth rate will stabilize post the second quarter.

“…while customers have continued to optimize during the second quarter, we’ve started seeing more customers shift their focus toward driving innovation and bringing new workloads to the cloud,” Brian Olsavsky, chief financial officer at Amazon said, according to a Motley Fool transcript.

AWS expects to make up for the dollars that it lost to enterprises’ cost optimization efforts by attracting new workloads and customers, Olsavsky said.

AWS growth rate is expected to show signs of resurgence by the end of the current fiscal year as enterprises complete their cost optimization efforts and shift to new workloads, such as AI, driven by new technologies such as generative AI, Olsavsky said.

“But what I would add is that we saw Q2 trends continue into July. So, generally feel the business has stabilized, and we’re looking forward to the back end of the year in the future,” Olsavsky said, adding that the company was planning to come out with new offerings, which the company expects will see good traction with existing and new customers.

AWS also hinted that the company is planning to make a significant amount of capital expenditure on developing and offering generative AI capabilities following its strategy of investing in data centers and hardware upfront before monetizing them over a longer period of time.

While AWS growth rate continues to slide, Google Cloud, which competes with AWS, maintained its growth momentum, reporting a 28% increase in revenue for the quarter ended June. Microsoft, another rival, posted a mere 1% drop in its growth rate for the June quarter when compared to its previous sequential quarter.