- One of the top tech analysts on Wall Street sees Amazon Web Services lagging in the AI cloud race.
- Bernstein's Mark Shmulik says AWS is "last place," but is showing signs of progress.
- AWS's partnership with Anthropic could boost future revenue growth.
Wall Street is digesting the surprising idea that Amazon Web Services has fallen behind in the AI cloud race. That might not be as bad as it sounds, though.
"Is AWS in last place in AI? It's hard to argue otherwise," Bernstein's Mark Shmulik, one of the Street's top tech analysts, wrote in a note to investors this week.
He cited a slew of data to support this concerning development, including AWS's slower revenue "growth rate," limited GPU capacity, CEO commentary, and the fact many AI startups are building elsewhere now.
That last point may be a reference to a Business Insider scoop last week that revealed Amazon is concerned about how generative AI is fueling a "fundamental" shift in how startups spend money on cloud computing services.
Shmulik noted that Microsoft Azure is growing faster than AWS due to Microsoft's early AI cloud partnership with OpenAI. Google Cloud is outperforming, too, with a "full-stack" offering that includes in-house Gemini AI models, special AI chips called TPUs, and fewer capacity issues.
"AI comes around and completely changes the rules of the game: suddenly there's a whole new crop of AI startups, LLMs, AI neoclouds, and a very expensive race for power, data centers, and GPUs," Shmulik wrote. "Maybe cloud is a perfect example of an Internet business where we can slot the 'Is AWS at risk from AI?'"
Amazon's stock has been the "clear laggard" this year compared with Microsoft and Google, he added, as investors grow increasingly concerned that the company is "truly in last place in AI."
This may not be a 'death sentence'
When emerging technology catches up to an incumbent, it used to be a "death sentence," Shmulik wrote, pointing to past examples such as MySpace and Netscape.
But being late to a tech trend isn't always fatal, and there are more recent examples where incumbent tech giants have maintained their leads and held off fast-rising rivals, he added.
Meta bounced back after TikTok's rise, and Google has recovered from the initial shock of ChatGPT, Shumlik wrote. If AWS can chart a similar comeback, it could shift the narrative ahead of its AWS re:Invent conference later this year, the analyst argued.
Signs of progress
Indeed, there are early signs of progress, according to this top analyst.
AWS posted its second-best quarter ever for net new dollar growth in the second quarter, Shmulik noted. The company remains capacity constrained, but that is starting to ease. AWS's partnership with Anthropic appears strong, with meaningful revenue contributions expected soon, he added.
"How does AWS drop the 'AI laggard' label?" Shmulik wrote. "A good story starts with good numbers. We see upside to AWS numbers and narrative around Re:Invent."
Developer engagement with AWS services has increased since the beginning of the year and gained more momentum over the summer. Shmulik anticipates stronger revenue growth for AWS in the third quarter, with expectations for continued gains in the fourth quarter.
Bernstein see AWS revenue growing 18% this year to $127 billion. The research firm forecasts 21% growth in 2026 and in 2027.
Mount Rainier
Shmulik highlighted AWS's partnership with Anthropic as a key growth catalyst. Amazon has invested at least $8 billion in the AI startup and teamed up with the company on a new AI supercomputer initiative, dubbed Project Rainier, which uses Amazon's custom AI chips.
"Google has been Anthropic's primary compute provider so far, especially for inferencing," the analyst wrote. "Project Rainier coming online should change this dynamic."
Bernstein estimates that Project Rainier could account for up to 2.6% of AWS revenue in 2026 and potentially more than 4% in 2027.
"While the long-term debate is likely to have several twists and turns, we take a favorable view of the cloud market leader figuring out AI in-time with multiple ways to win," Shmulik wrote in the note to investors.
Amazon's spokesperson didn't respond to a request for comment.
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