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Sharp Tech · · 15 min

AWS, Apple and the Challenge of Pivoting During the Good Times | Sharp Tech with Ben Thompson

Andrew SharpBen Thompson

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TL;DR
  • The AWS bear case is not that cheap AI infrastructure fails; it is that agents make capability, not cost, the bottleneck. Andrew Sharp frames Amazon’s base case as treating AI like storage or compute—“just another primitive.” Ben Thompson says job-replacing agents instead ask whether AI can “actually do it well,” a contest favoring Nvidia/OpenAI or Google’s integrated stack over cheaper Trainium and open-source models.
  • AWS’s unfilled demand may signal strategic weakness rather than pure upside. Thompson says backlog customers want Nvidia, not Trainium; Amazon’s Nvidia purchasing share is far lower than its cloud share. He suspects Nvidia may prioritize Microsoft and “prop up the CoreWeaves of the world” rather than a would-be competitor.
  • The plausible degradation path is AWS becoming Azure, not Nokia. Existing workloads remain locked in, but startups choose Microsoft/OpenAI or Google while Amazon’s goal is to carry existing customers into AI because “their data’s already here”—“a total role reversal” from cloud seven or eight years ago. Betting on inertia has served Microsoft well, but that does not guarantee Amazon’s strategy will.
  • Amazon and Apple may be trapped by a winner’s curse in which past strengths become arguments against changing course. Sharp notes Microsoft could pivot under Satya Nadella only after years of Ballmer-era humiliation; with former AWS chief Andy Jassy maintaining the same playbook, culture matters as much as technical options.
  • Apple’s strong quarters do not resolve its medium- and long-term AI risk because current success makes sacrifice harder. Thompson flags tariff pull-forward and China’s government-subsidy pricing, while arguing Apple will change nothing before leadership changes; anyone calling trouble may “look stupid for the next 5 years at least.”
  • The counter-case remains real: Apple could be the Sony among rivals that “spent themselves into oblivion,” while these incumbents’ inertia strategies may work. Both speakers preserve the possibility that they “may end up being right”; for Apple, the unresolved question is whether it needs to adjust or merely “execute better.”
Digest · the substance, structured for research

1. Agents make capability—not cost—the bottleneck

  • Sharp lays out Amazon’s base case: AWS customers will consume AI like storage or compute, “just another primitive.” But that assumes AI remains a feature inside the current paradigm—the paradigm Amazon already knows how to monetize.
  • Agents imply “job replacement,” where the constraint is not price but whether AI can “actually do it well.” Thompson says Amazon is therefore optimizing cheap functionality before that functionality is capable enough.
  • Thompson questions whether capability will emerge on Amazon’s cheaper, “not-as-good” Trainium chips running open-source models, given his view that Amazon’s models “stink.” He expects it more readily on Nvidia with OpenAI, or on Google models tuned to Google’s chips. Google can be cheaper and better, and is integrated from the start; Amazon is “sort of hoping it comes to them.”

2. Nvidia scarcity exposes AWS’s strategic conflict

  • AWS’s disappointing cloud growth is defended as capacity-constrained demand, but Thompson says the backlog wants Nvidia, not Trainium. Amazon’s share of Nvidia purchases is much lower than its cloud share, partly because it favors its own silicon.
  • Thompson suspects Nvidia has little reason to prioritize a would-be competitor over Microsoft or to “prop up the CoreWeaves of the world.” Nvidia still sells to Amazon and Google, but scarcity leaves AWS waiting and hoping supply eventually becomes sufficient.

3. AWS risks becoming the old Azure

  • The downside analogy is Windows, not Nokia: AWS can retain locked-in workloads while becoming less relevant and slower-growing. New companies may choose Microsoft/OpenAI or Google; Amazon’s goal is to carry existing customers into AI because “their data’s already here.”
  • Thompson calls that “a total role reversal” from cloud seven or eight years ago. Even Anthropic on Amazon offers performance but is “very expensive from an A100 perspective.”
  • Sharp observes that betting on inertia has served Microsoft very well—“Could be worse”—but Amazon is betting that its installed base will carry it into the next paradigm.

4. Winner’s curse is strategy hardened into culture

  • Sharp calls the dynamic “half strategy and half psychology”: Apple and Amazon assume prior strengths will persist, while unfamiliar reinvention is costly and may exceed their competence. Microsoft needed years of Ballmer-era humiliation before Satya Nadella could pivot.
  • Unlike that post-Ballmer break, Amazon’s CEO Andy Jassy is the longtime former head of AWS, making it “the same guy doing the same strategy.” Thompson’s definition: culture is “the remnants of good decisions that become part of the company’s psyche,” challenged only after real obstacles.
  • Thompson points to the Siri episode as evidence: he says Apple is still trying to “screw John Gruber” for calling the result embarrassing and bad—behavior that does not sound humble or eager to learn.

5. Apple will execute harder before it adjusts

  • Apple’s earnings-call message, to Thompson, was “We’re not changing anything”: Apple Intelligence had the right idea and merely needs better execution. His NBA analogy—“Do we adjust or do we execute better?”—led Sharp to revisit Thompson’s withering comparison of Tim Cook to Mike Budenholzer after Game 1.
  • Sharp adds that customers are not changing phones because of Apple Intelligence. Thompson notes the quarters are still huge, but some sales reflect tariff pull-forward and China’s government-subsidy pricing, so they may not recur.
  • The counter-case stays open: Apple might be “the Sony amidst a bunch of different companies that spent themselves into oblivion,” and both incumbents “may end up being right.” Yet Thompson sees no strategic change before Apple changes leadership; a medium-term bear could “look stupid for the next 5 years at least.”
  • Thompson says Intel is the apt comparison if Apple eventually runs into trouble: dominance can persist quarter to quarter and year to year while the long-term deterioration remains hard to see. Sharp’s personal counterpoint is that worsening software has made Samsung and Android newly thinkable after roughly a decade—except for “those sweet, sweet blue bubbles.”
Andrew Sharp

And all this, it's not that it's not going to work. Yes, that makes total sense. Infrastructure is going to dominate. All these companies with workloads on AWS, you can see them sort of adopting it, just using what's there. Just like you can get storage and compute, you can get AI from Amazon. It's just another primitive.

But implicit in that talk is the assumption that AI is slotting into the current paradigm. It's a feature you add, and we're going to provide that feature at a lower cost to everybody else. Again, they might be right. It is notable, though, as you're pointing out, that it happens to perfectly align with the way Amazon functioned in the last paradigm. And what happens if the paradigm changes?

The change in the paradigm is agents. I hate using the word “agents” because it's so overused right now. Everyone's talking about it. But the idea is that instead of a person doing something, the AI is doing it. It's replacement. Job replacement is the easiest way to think about it. And what's the limiting factor in job replacement? It's not cost. It's performance.

Ben Thompson

Yes, can you actually do it well? And so the question is, Amazon is laser-focused on cost for a functionality that is not yet capable enough. So where is it more likely that the capability emerges? Is it going to emerge on Amazon's cheaper, not-as-good Trainium chips running some random open-source model because Amazon's models stink? Is it going to come out on an Nvidia stack with OpenAI, or Google with its model tuned to its chips?

By the way, Google's cheap, too. They already have the advantages Amazon has, except they're fully integrated from the get-go, and they're just better at AI than Amazon is. The problem is, the lane Amazon's going for is the lane Google is super primed to dominate—not just by being cheaper, but also by being better. And in a world where the limitation on this new paradigm is being better, Amazon's just sort of hoping it comes to them. They're not really pursuing that at all. Again, it might work out for them. But they're a lot more like Apple than it might seem.

Andrew Sharp

Exactly. I mean, they're definitely on the back foot here. Is there anything that Amazon could do, or are they potentially on the back foot if we enter a world where performance is the differentiating factor for various enterprises?

Ben Thompson

The defense people have for Amazon's earnings, which were disappointing as far as cloud growth, is that they have a huge amount of demand that's not being filled because they don't have capacity, right? The problem is: why is that demand not being filled? That demand is not for Trainium chips. That demand's for Nvidia chips. The problem is AWS can't get enough Nvidia chips.

And you have to ask, when you look at the market share of who buys from Nvidia relative to cloud market share, Amazon's is way lower compared to their cloud market share. Some of that is a function of Amazon prioritizing its own chip. I suspect a lot of it is Nvidia sitting there and saying, “Everyone wants our chips. Why should we prioritize you when your entire goal is to come compete with us?”

It's like, “We'll sell to Microsoft all the chips that they want. We'll definitely prop up the CoreWeaves of the world, who do nothing but run Nvidia. And they'll resell their capacity to Microsoft or wherever else it might be.” Amazon's also sort of hoping, betting, that Nvidia gets sufficient supply to meet all the demand, so that Nvidia's like, “Well, I guess we'll sell it to you, Amazon, after all.”

Again, Nvidia is selling to Amazon. It's not like they're completely shutting them out. They are selling to Google. But if you're in a situation where there is limited supply of this resource, which is Nvidia chips, it's no surprise Amazon has a backlog of customers who want Nvidia chips and they can't serve them.

Andrew Sharp

Yeah. Well, I would say, looking at it all from a big-picture standpoint, what I enjoyed about the article is, one, it was a nice coda to our conversation about continued big-tech dominance from the last episode we recorded. And it dovetails with some of what I said on that episode, where it seems unlikely that things are going to remain completely unchanged when we get 10 years down the road.

Granted, AWS is not going to become Nokia. Apple is not going to become Nokia. But there are ways things could really start to slide.

Ben Thompson

Right. Well, it's kind of like the Windows thing, right? Windows didn't go anywhere, but it stopped being super relevant, and it wasn't growing like it used to back in the day. Maybe that's an AWS story. People are locked in for the workloads that they have there. But in the long run, in the future, if you're a new company, AWS has become Azure.

Where it used to be that all the new companies were on AWS, Microsoft grew a nice Azure business by basically carrying along all the enterprises who realized the benefits of the cloud and trusted Microsoft. They already had their stuff, so Microsoft sort of carried them along to the cloud, and they built it up together. Microsoft had a very nice Azure cloud business, basically serving all the people that weren't hip enough to be in AWS—these old enterprises.

That's Amazon's goal for AI. It's like, “Look, if you're a new company, you're probably going with Microsoft or OpenAI, which is running on Microsoft, or you're going with Google. Maybe you're going with Anthropic, who's running on Amazon, but even there, you're getting performance and it's very expensive from an A100 perspective.”

Amazon's real goal in the whole Trainium thing is: “We have all these companies on our platform. They're going to come along to AI. Their data's already here. They'll go with us.” It's really a total role reversal from the cloud 7 or 8 years ago. Look, betting on inertia has served Microsoft fairly well.

Andrew Sharp

That's right. It's worked out very well for Microsoft. Could be worse. But it's interesting, because what you were writing about with the winner's curse is half strategy and half psychology. I understand why these companies would look backward and think, “All right, everything that served us well in the current era is going to continue serving us well.”

Also, in Apple's case, it's far more affordable for us to continue to bet on this strategy than to bet on a complete unknown that we may not be competent enough to execute on. And so it clarifies the risks that these companies are taking as they move forward.

And also, it is like you trace how companies end up going in this direction. In Microsoft's case, Microsoft was an example that bet on its strengths and lost, and ultimately had to pivot. But would Microsoft have been able to pivot its strategy under Satya Nadella without the years-long humbling that they experienced under Ballmer, trying to double down on all the Windows advantages? I would guess not.

Just from a cultural standpoint, it's really hard for them to make that commitment until they bang their head against the wall over and over again and lose. And so that's some of what I see happening at Apple. And I know less about AWS, but it seems like a similar story in that respect as well. Does that resonate with you at all?

Ben Thompson

Andy Jassy at Amazon, their CEO, was the longtime former head of AWS. For sure, it's the same guy doing the same strategy. You do see it much more starkly with Apple. The real thing with Apple's earnings call was that it was very clear: “We're not changing anything. We're just going to do better.”

I analogized it on Dithering to an NBA team—the favorite losing Game 1 of a series. It's like, “Do we adjust, or do we execute better?”

Andrew Sharp

Of all the Tim Cook criticism that you've put forth over the last year and a half, nothing was more withering and damning than comparing him to Mike Budenholzer after Game 1 of the Milwaukee Bucks series.

Ben Thompson

It was so infuriating. And there would be obvious adjustments on the board that would not be explored. So perhaps Apple will do better than the Milwaukee Bucks at some point over the next couple of years. But yeah, that's sort of what is happening.

They're saying, “Look, we had the right idea with Apple Intelligence. Now we just need to execute on it.” And perhaps they'll be right. That's the thing: we could get 5 or 10 years down the line and look back, and Apple could be the Sony amidst a bunch of different companies that spent themselves into oblivion here. That's on the table as well.

Well, no, that's the thing. That's why it's hard to write about. Both companies may end up being right, right? It's definitely possible. So we'll see what happens and how it goes. But, yeah, Tim Cook's not changing crap.

Andrew Sharp

Mhm. And maybe at this point it's for the best that he seems determined to stick around for a while. Everyone talks about how he wants to stay until they launch their glasses or whatever it is. Your Satya Nadella point is a very, very good one. It can be very clear from the outside what needs to happen. But for a very successful company to change track, it just can't be done in the midst of success.

Ben Thompson

There is a real psychological and cultural component to it. And all the things that got you to where you are are going to rule this. What is culture? Culture is the remnants of good decisions that become part of the company's psyche.

This is how we do it. You don't ask why you do it. It's just the way it's done. And those things don't actually get challenged or questioned until you hit real obstacles.

And to your point, the Siri thing was super embarrassing. At the end of the day, they're still trying to screw John Gruber because he had the gall to say it was embarrassing and bad. That's not a company that sounds very humble or is learning from what they did, right?

Andrew Sharp

Well, also, customers aren't changing phones in the wake of the Apple Intelligence thing.

Ben Thompson

Huge quarters, right? And some aspect of this is a pull-forward from the tariff stuff. They cut prices, usually in China, because of a government subsidy program. There's a bit going into this that's going to show up in future quarters as sales that don't happen.

People shouldn't get too excited about the numbers. By the way, they're still really good numbers, right? To the point, as I said before, there's the short-term, medium-term, and long-term.

The risk is, I just think you can't disagree that they face very significant medium-term and long-term questions. But is it possible for them to address those if addressing them means sacrificing the short-term when the short-term is going so well?

And it's hard to talk about because, by definition, if you say they're in trouble, you're going to look stupid for the next 5 years at least, right? When does the medium term kick in?

But, yeah, they're not going to change anything—not until there's a change in leadership. I think that's pretty clear. No, sir. And I think you nailed it a couple months ago. The Intel example would be what's apt if Apple is going to run into trouble 10 years down the line.

You're not going to be able to see it in terms of the quarter-to-quarter, year-to-year performance for a little while here because they're going to remain dominant. I will just say, as an iPhone user, I'm more open than ever to shifting, in large part because of what I talked about earlier with the core competencies. There's just different software that doesn't work as well as it used to, and I've always heard great things about Samsung and some of what's happening on Android.

So, I'm open to it, which is not where I've been for about 10 years.

Andrew Sharp

Pod content. We need you to switch stand right now.

Ben Thompson

I think I might do it just for the pod and just to stick it to Apple, which I feel has gotten complacent over the last 5 years. I want to make them pay somehow, but I don't want to give up those sweet, sweet blue bubbles. So it will still be scary, but perhaps we'll explore that possibility in the fall. For now

AWS, Apple and the Challenge of Pivoting During the Good Times | Sharp Tech with Ben Thompson | BidClub