Amazon(NASDAQ:AMZN) put a number on its artificial intelligence (AI) business in its July 30 earnings report, and the number deserves more attention than it got. The AI business inside Amazon Web Services (AWS) has passed a $25 billion annual revenue run rate, management said, and it is growing at triple-digit percentages year over year. (Amazon's custom chip business separately passed the same mark. The company hasn't said how much the two overlap.) Missed Nvidia in 2009?
This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia.
Continue » A business of that size, and growing that fast, inside a company priced on ordinary growth assumptions, can decide a five-year return on its own. What could it make the stock worth by 2031? The AI line sits inside a segment that is itself speeding up.
AWS grew net sales 37% year over year to $42.2 billion in the second quarter (growth that management called its fastest in 18 quarters), putting the unit at a $169 billion annualized revenue run rate. To me, the margin move is even more impressive. AWS operating income reached $16.6 billion for the quarter, up about 64% year over year from $10.2 billion, expanding the segment's operating margin from about 33% to about 39%.
And the demand reaches years out. CEO Andy Jassy said on the July 30 earnings call that AWS's backlog of contracted work reached $496 billion in the quarter. Measured against the unit's current pace, the backlog alone is close to three times a full year of AWS revenue.
The $25 billion AI line is the fastest-moving of those AWS numbers. After all, triple-digit growth means it is on pace to double again within about a year. If the AI business doubles just twice more by 2031, that works out to about 32% annualized growth (a hard deceleration from triple digits), and it would still take the line from $25 billion to about $100 billion of annual revenue.
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