The boom in spending on AI infrastructure and services is sustainable because it’s driving meaningful innovation, the CFO of Amazon Web Services tells Axios.
Why it matters: Some investors and analysts are getting nervous about an AI bubble, with an eye on ballooning debt, corporate valuations and circular financing deals and whether revenue growth can keep pace with massive infrastructure spending.
Zoom in: AWS CFO John Felton says the company’s AI capital expenditures are paying off, adding that its experience shows the payback of spending aggressively on AI.
He argued that the sophisticated way to approach AI is by viewing it as a productivity booster more than a cost-saving tool.
It’s about using AI to drive “more interesting customer experiences, more interesting products, more revenue-driving features,” Felton says.
On his team, “AI is an amazing muck reduction tool,” he added, saying it allows his professionals to “reinvest their time into more value-added activities.”
The big picture: His comments came after Gartner research analysts rattled investors with a report estimating that more than $3.5 trillion in AI infrastructure spending “could be exposed to impairment” by the end of 2030.
Gartner noted the real risk of revenue growth failing to pay the costs of the AI buildout, leading to potentially massive write-downs.
Gartner projected that more than 80% of specialized AI cloud providers will cease operating independently by 2030, Axios’ Madison Mills noted.
Between the lines: While AWS is exposed to the risks Gartner identifies, it’s also among the companies best positioned to withstand them, as a hyperscaler with massive and highly diversified revenue streams.
Felton says he’s “comfortable about what we’re doing” with capex based on a nearly $500 billion order backlog as of Q2, driven by a mix of “big and small customers, large enterprises, large AI labs, but also small and medium-sized businesses.”
“The demand is real,” he says.
He also says AWS’ AI server investments are proving fruitful: “We’re seeing paybacks of under three years on those servers.”
By the numbers: AWS posted revenue of $42.2 billion in the second quarter, up 36.7% from a year earlier.
Friction point: Backlash to data center construction poses a threat to the AI infrastructure buildout of companies like AWS as communities fear the impact on the environment, energy rates and jobs.