Thank you, Steve. We got a guy who knows a lot about the consumer. We are in Seattle this morning at Amazon's campus in downtown Seattle. We have an exclusive interview with Amazon CEO Andy Jassy out with his annual letter today. There's so much to talk to you about. Couldn't be more thrilled to talk to you, especially right now. We have the CPI number. You don't focus so much on that. I mean, how often do you look at that number and think this is going to change the direction of your business?
Not that often. Not that often. But I imagine you do when it comes to tariffs. We look at all the things that could impact consumers and customers.
So what is going on right now in terms of the way you're thinking about the tariff position? Obviously, the China piece of it is still on, and a huge portion of your sellers and manufacturers that are selling through Amazon are manufactured in China.
Well, it's hard to know what's really going to happen. There's a lot of flux right now. We're going to spend time on where we spend all our cycles, trying to figure out how we have the right customer experience. We know customers care a ton about selection. We're going to try and do everything we can to keep prices as low as possible for customers, and we're going to ship things as quickly as possible for our customers. That's what we're going to spend our time focused on.
There have been some reports that you've already started to cut back in terms of buying certain product from China. Is that true?
Well, what I would tell you is, whenever you have any threat of any kind of discontinuity, as a team you have to think about what are the things you can do to help customers. So we're doing everything we can to try and keep prices the way they've been for customers, as low as possible. We'll do things like we've done some strategic forward inventory buys to be able to get as many items as makes sense for customers at lower prices. And there are some cases where we have deals we were negotiating that weren't done, where we'll renegotiate terms to make it easier for customers to have lower prices. So we're going to do everything we can to keep prices as low as possible.
Are you seeing any pull forward in terms of folks saying, 'I need to buy my son' — just yesterday, who's been desperate for a new laptop, said, 'Dad, maybe we got to buy the laptop now because it could cost a lot more later.' You have a smart son. How old is he?
Oh my gosh. You know, I think again, it's such little data at this point since the first set of tariffs came out and then yesterday there was a pause. But we have seen people have not stopped buying, and in certain categories we do see a little bit of people buying ahead. But it's hard to know if it's just an anomaly in the data because it's just a few days or how long it's going to last. But we're going to do, as I said, everything we possibly can to keep prices low for customers.
Who is going to eat the cost, though? Because I think that's one of the big questions. How much can get passed on to the customer? How strong do you think the American consumer is right now, and how much of it gets eaten by Amazon? How much gets eaten by a third-party seller?
I think we'll have to see how it all plays out. But if you made me guess, I'm guessing that sellers will pass that cost on fully. I think they'll try and understand why. Depending on which country you're in, you don't have 50% extra margin that you can play with. So I think they'll try and pass the cost on. And as I said, it's so early right now, but we haven't seen any change in consumer behavior in a meaningful way yet.
Is there any change in terms of your own behavior, meaning the company's behavior? One of the things you're doing is building data centers and having to invest heavily in that space. Obviously, there are component parts coming in from China and all over the world. How do you think about that?
Well, every finished good that's got any degree of complexity in it has parts from all over the world, and that's been true for a while. Actually, in our AWS business, starting about five years ago, we very significantly diversified our supply chain. So we have components that are from everywhere, it's not just one country. But we have such high demand right now for AWS, and the AI growth is so significant, that we don't see any attenuation in demand. We're going to keep building. Depending on what happens with the tariffs, there would be no change to that view. I don't see us attenuating or building data centers right now. We have very high demand.
Can I ask one related question on data centers? One of the other major shocks to the system was a couple months ago, the creation of DeepSeek, which was this new large language model that people thought was remarkably more efficient. There was this view among some that said maybe we don't need all of these data centers, or we're not going to need all of this processing power, as much energy as some had forecast. Did it change your forecast when you saw that?
No. I mean, in some ways, we would like nothing better than to make the cost of AI meaningfully less expensive for customers. The cost of AI today, because of the chips and because of the cost of inference, is still more expensive than it should be and than it will be. And that's what you need for companies to be able to deploy AI as expansively as they want. So when DeepSeek came out with this model, which people were excited about, it felt like it cost less, the inference was less. I think if you're building frontier models like we are, you're all working on a lot of the same types of problems, and you're going to see all this leapfrogging. You have seen all this leapfrogging every month, and you'll continue to see that. But for me, the lower that we can make the cost of AI, the more customers are going to use it. I think people get confused. I saw this in the beginning of AWS too. Customers love when you take the cost per unit of something down. It allows them to save money on what they're building, but they don't actually spend less. It actually unleashes them to do a lot more innovation, and absolutely they spend more. It's the same thing when we started AWS. We pretty significantly changed the cost of compute, storage, and database. Customers loved it, but they actually spent more on infrastructure because it allowed them to build more for their customers.
That's something you talk about a lot in the letter, bringing down the cost of compute when it comes to AI. And obviously you also make an allusion — I don't think you use the word Nvidia, but I know they're both a friend, a partner, and a competitor at the same time. They have controlled this marketplace for a very long time. What do you think has to happen to bring the price down? Because I assume that's going to come from you and AMD and everybody else who's going to try to do this. But how quickly does that happen?
It is going to happen. First, I would tell you that if you sat in the meetings with the AWS team right now, they feel like it's their responsibility and their mission to make the cost of AI meaningfully less for customers than it is today. I think there are two big drivers of it. One is the chips. What's interesting is most of the spend today in AI has been on training, these giant training runs. But when you get to scale of the production applications for AI, it flips, and the overwhelming majority of the spend is actually on the inference, which are the predictions for the model. So the two things that have to happen is the price performance of chips has to be meaningfully less. That's part of why we built our own chips. We have our own custom AI silicon called Trainium 2, where the price performance is 30 to 40% better than what's out there in the current GPU instances. So we're working on trying to take the cost of chips down. And you have to take the cost of inference down. That has to do with a whole bunch of things, including techniques like distillation, prompt caching, and how you handle different model architectures. So it's both the chips and the inference. They both need significant cost decreases, and we're working hard on that.
One related AI question. Last time I think I talked to you maybe a year or two ago, there was a different administration in Washington, and we were talking about the possibility that you would consider buying a company like Anthropic or something like that. You were in the middle of the iRobot situation, and it didn't seem like any deals could get done. In this new environment, do you say to yourself maybe there's acquisitions that we could make, and maybe buy an Anthropic?
We never stopped trying to do acquisitions that we thought made sense for our customers in the business before. But I do think that it's possible this environment will be a little bit easier to start to acquire companies. We'll have to see.
In the letter, you do talk a lot about the consumer. You talk a lot about the culture at Amazon, about trying to bring down prices. You just said you thought that, and you talk about how optimistic you are. You've seen no change in the consumer at all in terms of what they're buying. I mean, we've had conversations over the years where you've said, 'You know what, actually I see people going from bigger screen TVs to smaller TVs and other things like that.' Is there no shift right now in terms of what the consumer is doing?
I'd say not a lot. Over the last couple years, off and on as we've talked about, customers have gotten more careful. Whatever they can trade down on price, they do. Wherever they can find a bargain, they do. We've seen significant growth on discretionary items, but not at the growth rate we typically see, as people have just been careful. So that trend has continued. But as I said, we haven't seen meaningful impact yet from all the noise around tariffs.
But are you thinking there is? I mean, we've heard Walmart around guidance. You heard Delta talking about how they think that we're — I don't know if it's a slowdown, but not going to grow as fast. We've heard Warner Brothers is worried a little bit about advertising. I know you're in the advertising business. What does this feel like?
I completely understand why companies are nervous right now. It's so early, you don't know. But the worry, of course, when you have things like tariffs, is that it'll create macro issues where it depresses demand or it drives inflation. But we just haven't seen it yet.
Have you either been in Washington yourself or had your team in Washington talking to this administration about all of this?
We talk to the administration all the time.
And what are you telling them?
We talk about a broad number of issues with the administration all the time. We share with them different things that we think matter to consumers, things that we think matter to enterprises. We have some conversations about tariffs as well, and we share what some of the concerns are, and they're aware of them.
One of the things you talk about a lot in this letter is the management and culture that you've instilled in this business over the years, and how long you've actually been at this company. But one of the things that you've talked about is this idea of 'why.' Every question starts with 'why.' Why are we doing this? And 'why' sounds like really the question is not 'why are we doing this' but 'why can't we do something?' What is the new right now? Is there something that you're looking at where you're saying, 'Why can't we do something?'
