By Eric J. Savitz
No one needs a chatbot to understand that Amazon.com is going to get a big boost to its cloud business from artificial intelligence. Just how big has been an open question.
New Street Research analyst Dan Salmon has provided an answer, and it is a stunner.
Salmon estimates that AI-related workloads will represent 21% of Amazon Web Services revenue in 2025. He expects it to reach about $26.9 billion, up from an estimated $18.2 billion this year, and just under $8 billion last year. Salmon sees the total growing 54% on a compounded basis through 2027, reaching $41.6 billion.
Salmon expects similarly robust expansions for both AI model-training revenue, with 56% average annual compounded growth through 2027, and inference revenue, at 51% annualized growth. Inference software builds on top of large language models to provide useful data.
The analyst expects revenue from Amazon's in-house AI chips -- Trainium, for training models, and Inferentia, for inference workloads -- to reach $4.3 billion in 2027, with compounded growth of 144% through 2027. That would suggest about 10% of Amazon's AI-related infrastructure revenue would come from hardware running its own chips, rather than those from Nvidia.
Salmon sees a similar pattern unfolding at Google Cloud, the Alphabet arm that competes with AWS, Microsoft Azure, and Oracle Cloud.
The analyst expects AI-related workloads to reach 38% of overall Google Cloud revenue in 2025. That higher percentage compared with AWS reflects Google's smaller scale in handling traditional workloads, Salmon said in a research note detailing the forecasts. The analyst expects Google Cloud to generate $36.3 billion in generative AI-related revenue by 2027.
Growth at AWS and other cloud-computing providers slowed significantly over the past two years as customers engaged in an "optimization" process, looking for ways to trim their fast-growing reliance on the cloud companies. That trend seems to have reached its worst point in the December quarter.
"Re-acceleration of AWS revenue growth is the most likely driver of upside in AMZN stock in 2024, as improved retail profitability is increasingly baked into the stock," Salmon wrote. "With customer optimizations abating, we expect Gen AI services to increasingly drive revenue."
Amazon were 0.2% higher on Thursday. The stock was up 19% so far in 2024.
Write to Eric J. Savitz at eric.savitz@barrons.com
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March 28, 2024 13:06 ET (17:06 GMT)
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