Ep. 013 - AWS Margins Jump 10% While Azure and GCP Flatline (Tokenomics) | Jordan Nanos, Jeremie Eliahou Ontiveros, Joey Brookhart, Crystal Huang

**Jordan Nanos** (0:04)
Hello, everyone, welcome back to SemiAnalysis Weekly, episode number 13, lucky number 13 We're here with Joey, Jeremie and Crystal. We're going to talk about an article that we put out recently called Anthropic Growth and Bedrock Mix drive AWS margins higher while peers lag. That means we're going to talk about everything, Anthropic, including the recent announcement of their Series H, the release of Opus 4.8, but with the spin on focusing on the infrastructure, like how exactly they serve these tokens, especially with their partnership with AWS. Guys, welcome to the show. Excited to talk through this. Thanks, Jordan. All right.
Let's dig in with the article itself and talk a little bit about the backstory. I think a lot of people understand the concept of tokens, understand what GPUs are, and certainly like cloud providers and Neo Clouds, but not everybody is getting their tokens from the same place. So can one of you guys give me a backstory on Bedrock? Like what is AWS? What are they in terms of what they're doing for Anthropic and how they're serving tokens with Bedrock? Joey, you start with you.

**Joey Brookhart** (1:07)
Yeah, yeah, yeah. I'll go through that, and I'll do it kind of for all the clouds as well.
So if we really look across all the hyperscalers, and especially the big three, when we look at Amazon, Microsoft and Google, there's kind of two big breakouts, maybe even three. There's a bit on the software size. If you look at Microsoft, like GitHub Copilot, that's an area that's like an AI, software as a service type product. They have AI infrastructure as a service where they're just running out these accelerator chips. And then they kind of have this token as a service business, which is where they'll essentially expose these outside models or their own models to consumers to interact with. So it's a little bit of a different business because instead of just running the underlying chip, you're running the underlying model, you're buying it through your cloud, your CSP account, and kind of that enterprise spending agreement. You have all the same benefits around security, availability zones, and able to buy third-party models, and also some of these first-party models through your cloud provider of choice.
So at a high level, those are kind of the three big buckets right now at the large hyperscalers that we see, and we're seeing some big changes or differences between them and how they've got about it strategically. And then the two main things was Anthropics Growth really led the Anthropics Growth, and then Amazon's strategy around Bedrock has really driven their margins higher recently, was really the takeaway from the article. And this Token as a Service is obviously much better business for the hyperscalers than Infrastructure as a Service in the AI side.

**Jordan Nanos** (2:49)
Yeah, and if you look at the big three, they're kind of going in opposite directions right now, just in terms of their operating margin, right? That was the biggest chart from the article. I'll put it up on screen right now. But Crystal, can you maybe explain, when we look at AWS versus Google and versus Microsoft and you try and break out the cloud business, is this all to blame on Anthropic from our perspective? Or what's driving AWS to improve their operating margins while Microsoft's declining and Google's kind of stays flat here?

**Crystal Huang** (3:17)
So I feel like a lot of it is that Claude usage, right? A lot of people are using Claude more, and it's mostly routing through AWS. And then like what Joey was saying, the token as a service business model, they just have a better margin on that as opposed to like the infrastructure as a service model.

**Jordan Nanos** (3:32)
Makes sense, yeah.

**Jeremie Eliahou Ontiveros** (3:33)
Yeah, so I think like, if you take a step back, like the world of clouds has really changed a lot in 2023 as you started seeing these Neo clouds, these GP as a service businesses, because in the old days, which is basically 2022 and before, cloud service providers, you basically had free. Amazon, Google Cloud, Microsoft Azure, they had amazing margins, using returns on capital. Some new entrants like Oracle were trying to get in, but really the market was dominated by free players that had an amazing business. Now you get to GP as a service, and what folks started to realize is that the barriers to entry are much lower. So, Jordan, you're probably the best person to talk about this. You probably know the CEO of 150 Neo Clouds or 200 Neo Clouds.
How many now? 300?

**Jordan Nanos** (4:23)
We're tracking over 200