From "mass layoffs" to "exceeding expectations"—this week's most "reversed" company: Amazon

From "mass layoffs" to "exceeding expectations"—this week's most "reversed" company: Amazon

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For Amazon and its CEO Andy Jassy, the past week was truly a roller coaster.

The tech giant started the week with historic mass layoffs and external doubts about its AI strategy, but rebounded rapidly in just a few days thanks to a strong earnings report, ultimately finishing with a record-high stock price and renewed investor confidence.

A Cloud of Worry: Layoffs and Fears of Falling Behind in AI

Before Thursday’s earnings release, market sentiment was quite pessimistic. On Tuesday, Amazon announced 14,000 layoffs, exacerbating external concerns regarding its corporate culture and AI capabilities.

Previously, leading Wall Street analysts had labeled Amazon as an “AI laggard,” and the year-long reforms spearheaded by CEO Andy Jassy to streamline culture and cut bureaucracy had yet to deliver stronger returns for shareholders.

Investor anxiety was particularly focused on the slowing growth of AWS. Though AWS’s revenue base far exceeds its competitors, its growth rate has lagged behind Microsoft and Google’s cloud businesses. The investment research firm CFRA stated plainly in a report last week: “AWS’s revenue growth acceleration is essential.”

Earnings Fightback: AWS and AI Progress Restore Confidence

The Thursday earnings report became Amazon’s most powerful counterattack.

The report revealed that AWS sales reached $33 billion, up 20% year-over-year, marking its fastest growth since 2022. Meanwhile, the company announced a series of positive developments in its AI business, including strong demand for in-house AI chips and related software, directly addressing investors’ worries that it might fall behind in the AI race.

  • Its in-house AI chip, Trainium 2, has become a multi-billion dollar business.
  • The AI shopping assistant Rufus is expected to indirectly contribute over $10 billion in sales.
  • AWS’s contract backlog (signed but not yet recognized revenue) has grown to $200 billion.

CEO Andy Jassy stated on the earnings call: “AWS is building momentum.”

Financial firm William Blair said this was a “crucial step in retaking the narrative” for Amazon. Baird senior analyst Colin Sebastian also told Business Insider: “Jassy’s strategy is proving successful, though there are still some details to work out.”

The market’s response after the earnings release was also immediate. Wall Street analysts raised their forecasts, with Evercore’s Mark Mahaney writing in a report: “AWS’s potential is being unlocked.”

Barclays believes that “progress over the past 48 hours has largely dispelled market worries.” Amazon has successfully reversed the market narrative.

Beyond Earnings: Amazon's AI Infrastructure Takes Another Step Forward

While posting eye-catching financials, Amazon’s AI infrastructure also hit a key milestone.

According to a Wallstreetcn article, Amazon AWS’s Project Rainier core data center is now fully operational and currently training Anthropic’s Claude large model. The system deploys nearly 500,000 Trainium 2 chips (expected to double to one million by year-end), making it one of the world’s largest AI training computers.

This means Amazon’s AI infrastructure expansion is moving from strategic planning to actual production capacity.

Morgan Stanley expects AWS revenue growth to reach 23% and 25% respectively over the next two years. According to Bank of America, Anthropic alone could bring AWS up to $6 billion in incremental revenue by 2026.

Uncertain Road Ahead: Catching Up to Rivals and the Challenge of Streamlining

Despite the cheering in the market, skepticism hasn’t disappeared. DA Davidson’s analyst Gil Luria pointed out that AWS’s “mindshare” in the AI field still lags behind Microsoft or Google Cloud and that much catching up remains. One detail: Jassy sidestepped analysts’ questions about how concretely AI is contributing to AWS growth on the earnings call.

Moreover, whether the layoffs are over remains unknown. Jassy said Thursday the recent layoffs were not due to cost pressures or AI, but for “cultural alignment.”

He stressed: “Staying lean, flat, and fast-moving is very important, and that’s what we’re doing.” This suggests that to achieve the culture he wants, further organizational restructuring at Amazon may be on the horizon.

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