Tuesday brought 14,000 job cuts and fresh AI concerns. By Thursday, investors were cheering.
It was a turbulent week for Amazon and its CEO Andy Jassy, marked by historic layoffs and rising doubts about AI, followed by a swift 48-hour rebound that reassured investors. Wall Street is impressed — Amazon shares hit record highs on Friday — though questions remain.
“Amazon isn’t perfect, and we are seeing increasing urgency in defending their cloud leadership position and reclaiming some of the unique culture,” Baird’s senior analyst Colin Sebastian told Business Insider. “Jassy’s strategy is proving successful, even if there are still some wrinkles to work out.”
Concerns about Amazon’s culture and status as an ‘AI laggard’
Tuesday’s layoffs fueled concerns about Amazon’s AI prowess, sparking questions over whether the cuts reflected slowing growth or efficiency gains were paying off. The company said it was a preemptive move that makes it “leaner.”
Even before the layoffs, Amazon was contending with a widening perception that it was trailing in AI, with a top Wall Street analyst calling it an “AI laggard.”
On top of that, Amazon’s yearlong push to streamline its culture and cut bureaucracy had yet to deliver stronger shareholder returns. Jassy has cut the manager-to-employee ratio by 15% this year as part of a broader push to instill discipline and reshape Amazon’s culture.
Until earlier this week, it was the only one of the seven largest tech firms to underperform the broader market over the past five years.
Investors were especially worried about Amazon Web Services’ slow growth, the company’s high-margin cloud unit. Though it maintains a far larger revenue base, AWS’ growth has lagged behind competitors such as Microsoft and Google.
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“AWS revenue growth acceleration is a must,” CFRA wrote in a research note last week.
Noah Berger/Noah Berger
Amazon’s progress on AI went a long way toward easing investors’ concerns
Amazon put those concerns to rest on Thursday. The company’s third-quarter earnings topped expectations, and it raised its capital spending forecast amid surging demand. AWS reported $33 billion in sales, a 20% increase, its fastest growth since 2022.
The company also made a number of disclosures that showcased its progress in AI, including:
Trainium 2, AWS’ in-house AI chip, is a “multi-billion dollar” business, with growing demand.Connect, AWS’ call center software, is on pace to reach $1 billion in revenue.Rufus, Amazon’s AI shopping assistant, is on track to indirectly contribute over $10 billion in sales volume.Bedrock, AWS’ AI development tool, could eventually grow as large as EC2, one of its main profit engines.AWS added more than 3.8 gigawatts of power in the past 12 months, and is on track to double its power capacity by 2027.AWS is “monetizing” demand as quickly as capacity becomes available due to strong demand.AWS’ backlog, or contracts not yet recognized as revenue, rose to $200 billion, excluding new deals in October that already surpassed the total volume of the entire third quarter.
Wall Street loved what it saw. “The AWS unlock is here,” wrote Evercore’s Mark Mahaney. Financial firm William Blair called it “a key step in reclaiming the narrative,” while Barclays wrote in a note that “the past 48 hours have gone a long way to dispelling concerns.”
“AWS is gaining momentum,” Jassy said during Thursday’s earnings call.
Challenges remain — like more layoffs and catching up to Microsoft and Google
Still, skepticism remains.
AWS may have pioneered the cloud, but the rise of AI is reshaping the landscape and giving rivals fresh ways to compete. Some of its flagship AI products have failed to gain much traction. And it didn’t help that Jassy sidestepped an analyst’s question on Thursday to specify how much of AWS’ growth came from AI versus its core infrastructure business.
DA Davidson’s Gil Luria, who remains bullish on Amazon, told Business Insider that AWS still hasn’t matched Microsoft or Google Cloud’s lead in AI mindshare, and has plenty of catching up to do.
“Amazon has been the slowest of the three hyperscalers in commercializing AI,” Luria said.
There’s also uncertainty about whether the layoffs are over. Jassy said Thursday that the latest cuts weren’t driven by cost pressures or AI, but by cultural alignment, implying the shake-up isn’t done.
“It’s important to be lean, it’s important to be flat, and it’s important to move fast, and that’s what we’re going to do,” Jassy said.
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