The Most Important Business in the World: Why AWS is the Digital Infrastructure of the Future

Mikey 'the moat' Maloney on Amazon.com, Inc. (AMZN-USA | amazoncominc)

4/29/2025

Summary

Amazon Web Services (AWS) is the foundational layer powering the digital economy. Generating over $100 billion in revenue in 2024 and operating at a staggering 37% margin, it has become not just a revenue engine for Amazon, but the scaffolding for modern software development, artificial intelligence, and digital entrepreneurship. While many investors still associate cloud growth with 'data center migration', the real value of AWS lies in the developer ecosystem it has built, the depth of services it offers, and the role it plays as the ‘Home Depot’ of the digital builder economy. With minimal direct competition, high switching costs, and increasing customer lock-in from AI and data integration, AWS stands as one of the most enduring and profitable business models of our time.

Thesis

1. Historical Growth and Exceptional Profitability AWS’s performance over the last decade speaks for itself: • Revenue CAGR 2013–2024: 38% • Operating Income CAGR 2013-204: 45% • 2024 Revenue: $107.6 billion • 2024 Operating Margin: 37% This is a business that has scaled and improved margins—a rare and powerful combination. Even more striking, the business has accelerated in 2024, as GenAI adoption ramps and enterprises shift workloads into more complex and proprietary pipelines. AWS has effectively monetized the infrastructure layer of the modern internet. And unlike e-commerce or advertising, which are competitive and cyclical, cloud services are deeply embedded into operations and budgets. 2. The Market Misses What AWS Has Become Most investors still interpret AWS through the 2014 lens of 'moving your servers to the cloud'. That shift—while real—was phase one. Today, AWS is not a place to store data; it’s where you build software. It’s the default toolkit for building a digital company. S3, EC2, Lambda, Route53, Bedrock, IAM, API Gateway—these are not abstract technologies; they’re the parts in the toolkit of every modern tech entrepreneur. AWS’s ability to continuously launch new ‘primitives’—developer building blocks—keeps customers inside the ecosystem and deepens lock-in. Importantly, many applications we use every day—startups and mature companies alike—are essentially wrappers around AWS. The software is the UX. AWS is the engine room. 3. The Moat is Massive—and Expanding AWS has several structural advantages: • Scale Advantage: The capital expenditures required to build and maintain global datacenter infrastructure are immense. Only AWS, Azure, and Google Cloud can compete at scale. In China, only Alibaba, Baidu and Tencent compare. This is an infrastructure moat. • Breadth of Services: AWS has the widest array of services in the market, including many niche developer tools that lock in advanced users. • Deep Developer Ecosystem: AWS has cultivated a grassroots following among developers and entrepreneurs. AWS Summits draw tens of thousands. The ethos of “come build with us” is deeply embedded. • Switching Costs: Once a company builds its application architecture on AWS, it’s difficult to untangle. Rewriting systems and moving to a different provider is risky, expensive, and disruptive. It’s worse than changing your checking account. • AI Integration = Brain Lock-In: With Bedrock and custom LLM support, AWS isn’t just storing your data—it’s now powering your AI. That’s not just storage. It’s thinking. Businesses will find themselves increasingly tied to AWS as their workflows, knowledge bases, and decision-making tools become interwoven with AWS-hosted models. 4. AWS is the Backbone of the Software Economy A third of the companies backed by private equity firms in the US are in software or internet services. This is not a fringe economy; it’s the new industrial base of the US. And AWS is the dominant supplier of tools and infrastructure to this economy. The US may not dominate manufacturing, but it dominates software. AWS is the platform that enables every other builder. 5. Rise of the Mini-Entrepreneur The modern economy increasingly supports the proliferation of small, digitally-native, AI-powered companies. Individuals are starting businesses on platforms like Substack, Shopify, Fiverr, and Skool. Behind many of these platforms—and the startups they enable—is AWS. AI compounds this. If every individual now has access to infinite ‘knowledge workers’ via AI, the bottleneck is no longer manpower but infrastructure. And AWS is the infrastructure of choice. From scalable compute to low-latency APIs, AWS gives solopreneurs and startups the ability to launch, grow, and scale like never before. 6. Generative AI is a New Layer of Lock-In AWS’s investments in GenAI are significant. Bedrock, its service for integrating foundation models, creates another layer of customer integration. Just as companies built entire apps on AWS storage and compute, they will now build intelligence. That intelligence—prompt engineering, retrieval augmented generation (RAG) pipelines, data integration—is not portable. It’s customized, tuned, and married to AWS’s services. The more AI workloads shift into production environments, the more AWS becomes the ‘brain’ of the organization, not just the spine. 7. AWS Enables Margin Expansion at Amazon Amazon’s retail business is low-margin and capital-intensive. AWS, on the other hand, contributes over 60% of Amazon’s operating income. This makes AWS the core driver of Amazon’s valuation and financial flexibility. Institutional investors who model Amazon on a P/E basis often miss the point: AWS is a high-margin software company embedded inside a global logistics business. Spinning it out may be politically difficult, but the value contribution is clear.

Risks

Risks: 1. Regulatory scrutiny There is some risk of regulatory pressure, particularly around data sovereignty, AI ethics, or market concentration. However, AWS has generally avoided the political spotlight compared to Meta or Google. 2. Cloud price competition There is some risk from Oracle trying to establish itself as a 4th player by undercutting on pricing, 3. Dependence on physical infrastructure AWS must continue investing heavily in datacenters and power infrastructure, including for GPUs needed for AI. Any supply chain constraints (e.g., Nvidia shortages) can impact near-term growth. 4. Azure and Microsoft Bundling Microsoft continues to bundle Azure with its ubiquitous Office products, capturing enterprise IT departments. AWS has responded by strengthening its go-to-market efforts, and focus on start-ups, but faces strong competition in this segment.

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