Key Points
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The cloud infrastructure opportunity is far from exhausted.
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The AI trend adds another growth engine to the cloud industry.
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Positioning the company to capitalize on growing demand for compute will require enormous up-front spending.
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Amazon (NASDAQ: AMZN) CEO Andy Jassy believes Amazon Web Services (AWS) could become a $1 trillion annual revenue business within the next five to 10 years.
That’s an extraordinary forecast. AWS currently generates approximately $184 billion in annualized revenue. Reaching $1 trillion would make it one of the largest businesses in the world.
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But here’s what’s interesting: Amazon isn’t betting on artificial intelligence (AI) alone to get it there. There’s an even bigger opportunity in a trend that has been underway for years: businesses moving their technology infrastructure to the cloud.
AI could accelerate AWS’ growth, but the underlying cloud opportunity is an equally important (if not more important) aspect of its massive growth runway.
Most businesses still haven’t moved to the cloud
Cloud computing allows companies to rent computing power, storage, and software infrastructure instead of owning and maintaining their own servers. Think of it like renting a warehouse instead of building one. Businesses can access the space they need as they need it without making massive up-front investments or having to manage an entire facility.
This is increasingly attractive because running private data centers is growing ever more expensive. Companies must purchase servers, maintain equipment, provide electricity, and employ specialists to keep everything operating.
AWS offers an alternative. Businesses can pay for computing resources as they need them and scale up or down quickly as their requirements change.
Herein lies the opportunity. According to Jassy, approximately 85% of global IT spending still takes place on companies’ own on-premises infrastructure, compared to about 15% in the cloud. He believes that over the next 10 to 20 years, those figures will flip.
Banks, retailers, manufacturers, and other large enterprises still have important systems running on older infrastructure. Moving these systems would be complicated, but the potential benefits for the companies that choose to do it include lower infrastructure costs, greater flexibility, and easier access to newer technologies.
For AWS, this means it can continue winning customers even without the AI boom.
AI gives AWS another powerful growth engine
The second opportunity is, of course, the rise of artificial intelligence.
Developing and running AI applications requires enormous computing resources. Businesses need powerful chips, data storage, networking, and software to train models and deliver AI services to customers. AWS provides much of this infrastructure.
More importantly, it allows companies to consolidate their existing business applications, data, and AI workloads on a single platform. This creates an advantage. A company already using AWS to store its data and run its applications may find it easier to develop and deploy AI services within the same environment.
The latest results suggest this opportunity is gaining traction.
In the third quarter, AWS’ revenue increased by 39% year over year to $46 billion, its fastest growth rate in nearly five years. Its annualized revenue run rate reached approximately $184 billion.
AWS also reported a $578 billion backlog, representing contracted business that has yet to be recognized as revenue. These numbers are encouraging because they show that demand for compute extends beyond experimental AI projects.
Having said that, backlog isn’t guaranteed revenue. Amazon still needs to deliver the required capacity, and its customers must ultimately use the services.
Even so, the combination of traditional cloud migration and AI demand gives AWS two sources of growth that could reinforce each other.
The $1 trillion ambition comes with a price tag
Of course, reaching $1 trillion in annual revenue won’t be easy.
AWS currently has approximately $184 billion in annualized revenue. To reach $1 trillion in five years, it would need to grow at roughly 40% annually. Over 10 years, the required growth rate would be approximately 18%.
Management recently said it expects AWS to grow by more than 40% in both 2027 and 2028. That’s encouraging, but sustaining such growth over a longer period would be a challenge in itself. Competition could intensify, cloud customers may become more cost-conscious, and some workloads may be distributed across multiple providers.
There’s also the cost of expansion. Amazon expects to spend approximately $220 billion on capital expenditures in 2026, with the majority of that going toward AWS. Management has said that it expects to increase capex spending meaningfully in 2027.
The good news is that it already has substantial earnings power. Third-quarter AWS operating income increased 56% to $17.8 billion, representing an operating margin of 38.7%. That’s an important advantage.
In other words, AWS isn’t a speculative business waiting for demand to arrive. It’s already a highly profitable operation funding its next phase of expansion.
What this means for investors
I think Jassy’s $1 trillion ambition for AWS is worth taking seriously, although investors shouldn’t treat it as a guaranteed outcome.
The more important takeaway is that AWS has two major growth opportunities working together. Traditional businesses are still moving more of their technology infrastructure to the cloud, while AI is creating entirely new computing demands.
This gives AWS a potentially longer growth runway than a business that’s dependent on a single technology trend.
And if Amazon executes well in the coming years, AWS could become considerably larger and more profitable — generating enormous value for shareholders.
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Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
