Amazon CEO justifies AI investments in annual shareholder letter

In his annual shareholder letter released yesterday, Amazon CEO Andy Jassy defended the company's multibillion-dollar investments in artificial intelligence, emphasizing that such expenditure is essential for maintaining competitiveness in today's market landscape. The letter, which serves as a comprehensive overview of Amazon's 2024 performance and future strategy, highlighted the company's strong financial results alongside its commitment to innovation through what Jassy terms a "Why Culture.

According to the letter, Amazon achieved significant growth in 2024, with total revenue increasing 11% year-over-year from $575 billion to $638 billion. The company's operating income improved substantially, jumping 86% from $36.9 billion in 2023 to $68.6 billion in 2024, resulting in an operating margin expansion from 6.4% to 10.8%.

Breaking down the revenue by segment, North America operations grew 10% to $387 billion, International revenue increased 9% to $143 billion, and AWS (Amazon Web Services) demonstrated particularly strong performance with 19% growth to $108 billion. For perspective, Jassy noted that just a decade ago, AWS revenue stood at mere $4.6 billion, while Amazon's total revenue was $89 billion.

The company's Free Cash Flow, adjusted for equipment finance leases, showed modest improvement from $35.5 billion in 2023 to $36.2 billion in 2024.

AI investments: Necessary for future competitiveness

A central theme of Jassy's letter was the justification for Amazon's extensive investments in artificial intelligence. "If your mission is to make customers' lives better and easier every day, and you believe every customer experience will be reinvented by AI, you're going to invest deeply and broadly in AI," Jassy wrote, echoing similar sentiments expressed by Alphabet CEO Sundar Pichai just a day earlier.

The letter revealed that Amazon currently has more than 1,000 generative AI applications under development across its various business units, aimed at transforming customer experiences in shopping, coding, personal assistance, streaming services, advertising, healthcare, and numerous other areas.

Jassy emphasized that substantial capital investment is necessary to obtain AI chips and build data centers. AI infrastructure requires significant upfront expenditure, even though the assets remain useful for many years. The monetization of these investments typically begins months after the capital deployment and continues over an extended period.

"We continue to believe AI is a once-in-a-lifetime reinvention of everything we know, the demand is unlike anything we've seen before, and our customers, shareholders, and business will be well-served by our investing aggressively now," Jassy stated.

The "Why Culture" driving Amazon's innovation

In a detailed explanation of Amazon's operational philosophy, Jassy introduced what he calls the company's "Why Culture." This approach involves constantly questioning established norms and seeking ways to improve customer experiences.

"We've had this long-held philosophy at Amazon about two-way and one-way door decisions," Jassy wrote, explaining that two-way door decisions can be easily reversed if wrong, while one-way door decisions require more methodical consideration due to their irreversible nature.

However, Jassy noted that much of Amazon's innovation stems from trying to "open doors that have historically seemed bolted shut," with the key question being simply: "Why?"

This questioning approach has led to many of Amazon's most successful innovations, from expanding beyond books to offering virtually all product categories, incorporating third-party sellers, creating AWS, developing Prime Video, and launching initiatives like Buy with Prime.

Leadership principles and organizational norms

The letter outlined several leadership principles that support Amazon's Why Culture, including:

1. "Are Right a Lot" - Leaders should seek diverse perspectives and be willing to change their minds when presented with compelling information.
2. "Learn and be Curious" - Leaders must never stop learning and should explore new possibilities.
3. "Have Backbone; Disagree and Commit" - Leaders are obligated to challenge decisions they disagree with, but must fully commit once a decision is made.

Jassy also described organizational norms that reinforce this culture, such as using written narratives instead of PowerPoint presentations, creating "working backwards" documents like Press Releases and FAQs before beginning development, prioritizing in-person collaboration, tolerating "messy meetings" during the innovation process, and operating like "the world's largest startup."

Future challenges and opportunities

Looking ahead, Jassy identified several areas where Amazon is applying its Why Culture to explore new opportunities:

1. AI development and cost reduction - Amazon is working to make AI more affordable, with their Trainium2 chips offering 30-40% better price-performance than current GPU-powered compute instances.
2. Personal assistant evolution - Through Alexa+, Amazon aims to create a personal assistant that is not only intelligent but can take real actions for users across various domains.
3. Faster delivery - Despite setting speed records for two consecutive years, Amazon continues to improve delivery times, expanding same-day and overnight delivery to smaller cities and towns.
4. Rural connectivity - Through Project Kuiper, Amazon's low Earth orbit satellite network, the company aims to provide broadband access to 400-500 million households worldwide that currently lack connectivity.
5. Healthcare transformation - Amazon is working to address frustrations in the healthcare system through Amazon Pharmacy and Amazon One Medical.

Financial implications and shareholder value

Jassy's letter emphasized the company's long-term focus on creating shareholder value through market leadership, which he argued translates directly to "higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital."

This philosophy, reaffirmed by the inclusion of Jeff Bezos' original 1997 shareholder letter, underscores Amazon's continued commitment to long-term thinking over short-term profitability considerations.

In separate financial disclosures released alongside the shareholder letter, Amazon revealed that Jassy's total compensation for 2024 was $40.1 million, up from $29.2 million in 2023, largely due to the approximately 40% increase in Amazon's stock price during the year.

Market position and competitive landscape

While not directly addressing recent market concerns about potential import tariffs, particularly those targeting goods from China, Jassy maintained an optimistic outlook on Amazon's competitive position.

The emphasis on customer obsession and innovation appears designed to reassure shareholders about the company's ability to navigate an increasingly complex global trade environment. Amazon's stock has declined approximately 13% this year, performing better than some competitors like Alphabet and Apple, but lagging behind Microsoft's more modest 7% decline.

Implications for the marketing industry

For marketing professionals, Amazon's shareholder letter offers several significant insights. The company's massive investments in AI signal a fundamental shift in how customer experiences will be designed and delivered. Marketers should take note of Amazon's conviction that "generative AI is going to reinvent virtually every customer experience we know."

The letter suggests that AI will transform numerous marketing-relevant domains including shopping experiences, personalization, content creation, advertising, and customer service. Companies that fail to incorporate AI into their customer experiences may find themselves at a competitive disadvantage as these technologies mature.

Additionally, Amazon's continued focus on decreasing delivery times indicates that consumer expectations for immediacy will only increase. This has implications for all companies involved in e-commerce and direct-to-consumer operations, as Amazon's standards often become industry benchmarks.

The expansion of same-day delivery to smaller cities and towns also signals a shift in how brands must think about serving customers in less densely populated areas. As Amazon extends its rapid delivery capabilities to rural communities, other retailers and brands may need to reconsider their distribution strategies to remain competitive.

Timeline

• April 10, 2025: Annual shareholder letter released, detailing 2024 performance and strategy
• 2024: Total revenue grew 11% to $638 billion; operating income improved 86% to $68.6 billion
• 2024: Over 1,000 generative AI applications under development across Amazon
• 2024: Introduction of Trainium2 chips offering 30-40% better price-performance
• 2024: Launch of Amazon Nova frontier foundation models
• 2024: Expansion of same-day and overnight delivery to dozens of smaller cities
• Early 2025: Initial launch of production satellites for Project Kuiper
• 2025: NBA and NASCAR coming to Prime Video
• Next few years: Planned deployment of over 3,200 satellites for Project Kuiper
• Looking ahead: Continued focus on making AI more affordable and accessible

Amazon's shareholder letter reflects a company firmly committed to questioning established norms and investing heavily in future technologies, particularly AI, while maintaining its characteristic focus on customer experience. As Jassy concluded, "It remains Day One."