Amazon's new cloud boss inherits a business at the intersection of AI.

“It's very early days in creative AI,” said Jesse, who will succeed Jeff Bezos as CEO in 2021. “That's a lot of potential, and we're investing heavily in it and hope to be a leader.”

For Selipsky, who took over AWS when Jassy was promoted, the days wore on quickly.

In the most significant change of Jesse's tenure at the helm, Amazon announced last week that Selpsky, 57, is leaving AWS and will be replaced by Matt Garman, 48, a veteran AWS executive who recently I led sales and marketing.

The problem for Selpsky, and the challenge for Garmin, is that Amazon has yet to emerge as a leader in generative AI despite throwing billions of dollars behind OpenAI competitor Anthropic and rolling out its own large language models, or LLMs. Is. In the developer universe and among startups, the company is fighting the perception that it lags behind cloud rivals Microsoft and Google, in addition to OpenAI in developing AI tools.

After years of rapid expansion, AWS growth fell to 13% in 2023, down from 37% in 2021 and 29% in 2022, reflecting more conservative business spending on IT and cloud services. Amazon has downsized across the board, including at least two layoffs at AWS since last year.

AWS is the leader in cloud infrastructure, but Microsoft is quickly closing the gap. AWS's market share fell to 31% in the first quarter of this year from 32% three years ago, while Microsoft Azure grew from 19% to 25% in 2021, according to Canalys. Google is also picking up share, rising to 10% of the market from 7% in early 2021.

Over the past few quarters, Microsoft has cited growing demand for AI tools as a catalyst for its momentum.

Gil Loria, an analyst at DA Davidson, told CNBC that Amazon was “caught red-handed” by the generative AI boom.

“He allowed Microsoft Azure to run laps around him, which shouldn't have happened, and it ultimately paid off,” Luria said, referring to Selpsky's departure.

Garman's pick for the top job “suggests Mr. Jesse, and perhaps Mr. Bezos, believes he is the person who will most help Amazon close the lead and perhaps establish his own lead,” he said. said Luria, who recommends buying Amazon shares.

A source close to Amazon, who asked not to be named because he was not authorized to speak on the matter, told CNBC that Garman was a “wartime” leader and said the company would be more aggressive in AI. A change is needed.

Jesse announced the move in a staff memo, saying that he and Selipsky had agreed years ago, when they were discussing the role, that Selipsky “may be a few years down the road.” and that one of the things he would focus on during that time was helping to develop the next generation of leadership.”

Selipsky is leaving the cloud division in a “strong position,” AWS spokesperson Casey McGee told CNBC in a statement.

“AWS's growth, innovation and profitability over the past three years speaks for itself,” said McGee, “with AWS delivering the highest quarter-on-quarter dollar growth rate of any cloud provider by our numbers so far this year.” has created,” McGee said. He said AWS leads in security and reliability, as well as “the overall breadth and depth of our services.”

Amazon's annual shareholder meeting, which took place virtually on Wednesday, came at a critical time. It was held days after Selpsky's departure and was overshadowed by AI-focused events at top tech companies.

Last week, OpenAI introduced GPT-4o, a faster model with improved capabilities in text, video and audio. Google followed suit a day later at its developer conference, presenting the company's lightest and most efficient AI models. And this week, Microsoft announced new computers with advanced chips designed to run AI features in Windows.

During a question-and-answer session Wednesday, Jesse was asked twice about the status of Amazon's creative AI efforts. He said the company is “seeing a lot of momentum” in creative AI within AWS, where it is now a multibillion-dollar business based on annual revenue.

He reminded shareholders that Amazon owns Alexa, which was a popular consumer offering long before sophisticated chatbots hit the market.

“If you don't believe there's going to be a really pervasive personal assistant, you've got your head in the sand,” Jesse said, adding that the company is building a “much more pervasive” AI model to power Alexa. Amazon has previously said it plans to use generative AI to make Alexa more interactive. CNBC reported Wednesday that Amazon plans to charge a subscription fee for the more powerful version.

Garman joined Amazon as an intern in 2005, and was hired full-time the following year as an early product manager at AWS, working on a core computing service called EC2. He worked his way up to senior vice president in 2020, overseeing sales, marketing and global services.

In 2021, when Amazon announced that Jassy would take over as CEO from Bezos, many speculated that Garman would be named CEO of AWS. Instead, Amazon chose Selpsky, who had previously spent 11 years at Amazon but was then running Salesforce's Tableau software.

Shortly after the transition, the economy turned against AWS. Inflation began to rise sharply, driving up interest rates and forcing businesses into capital conservation mode. As of mid-2022, Amazon was telling investors it was “ready to help customers optimize their spending” due to these economic challenges. AWS acknowledged that it was compromising short-term revenue to maintain long-term customer relationships.

Then came ChatGPT. OpenAI, backed by Microsoft, released the chatbot in November 2022 and watched it go viral. Months later, Microsoft invested billions more in OpenAI, and became its exclusive cloud partner, giving Amazon's chief cloud rival a new competitive edge.

Over the past year, Jassy has learned about Amazon's opportunities in generative AI to offer automated services to advertisers and sellers and provide technology within AWS to run advanced models and workloads. .

The company also boasts about the success of AWS's Trainium and Inferentia chips, with Anthropic using them to build and train its models, a process often performed on Nvidia graphics processing units.

“I don't know that any of us have seen this kind of potential in technology in a very long time, certainly since the cloud, maybe since the Internet,” Jesse said on the company's first-quarter earnings call in April. “About creative AI.

But realizing this opportunity is proving to be a major hurdle.

It took AWS months to come up with an AI model that could go against ChatGPT. The company is now offering its own LLM as well as third parties, including one from Anthropic, which is backed by Amazon.

Last year, Amazon released Q, a chatbot for businesses. An AWS employee who used Q told CNBC that it felt underwhelming because the chatbot would answer questions with information that wasn't particularly relevant or valuable. The employee asked to remain anonymous because he was not authorized to discuss the matter.

AWS said its Q chatbot is gaining traction among a number of customers, including Accenture, Toyota, GoDaddy and GitLab. Bedrock, which gives users access to AI models from Amazon and others, now has thousands of customers and partners, the company said.

A week before his departure, Selipsky made some changes to the Q Team. It tapped Dilip Kumar, a longtime Amazon executive who developed its cashierless checkout technology to oversee the “Amazon Q Business set of services,” according to a memo to employees seen by CNBC. And helped launch. Kumar will report to Swami Sivasubramaniam, Vice President of AI and Data at AWS.

A former AWS employee, who asked not to be named to discuss private matters, said the company has banned AI from its software tool SageMaker and data visualization tool QuickSight, citing security reasons. Limited ability to use the Services. . This practice, known as dogfooding, is commonly used at software companies so that employees can test products and services for bugs and help make improvements.

AWS said all applications made available to employees are subject to security review, but denied that it has banned staff from using Amazon's AI tools.

Despite all its AI challenges, Wall Street continues to rally around Amazon, which last month reported better-than-expected first-quarter results and a more than 200% increase in operating income. Sales on AWS grew 17%, a slight acceleration from the past few quarters.

After jumping 81% in 2023, Amazon shares are up 21% this year, topping the Nasdaq's 12% gain.

Jamie Meyers, a senior investment analyst at LafferTengler Investments, which owns shares of Amazon, said he sees the leadership transition at AWS as a “natural progression,” adding that Garmin has “always been seen as a successor.”

“AWS has always been about investing in growth,” Meyers said, a strategy he said is unlikely to change under Garmin.

Garmin is viewed internally as someone who is highly technical, and is respected among engineers. Another former AWS employee said that when Jassy chose Garmin to lead the AWS sales organization in 2020, he was looking for a technical leader and someone who “knew everything inside out.” Garmin's appointment to the role was seen internally as a stepping stone to lead AWS internally, the person added.

In his memo to staff last week, Jesse cited Garmin's background in “both the product and demand generation sides” of AWS, noting that he has “a wealth of skills and experiences for his new role.” A moderately strong combination.”

“I'm excited to watch Matt and his amazing AWS leadership team invent our future,” said Jesse. “It's still such early days in AWS.”

— CNBC's Jordan Novette and Kate Rooney contributed to this report.

Correction: CNBC reported Wednesday that Amazon plans to charge a subscription fee for a more powerful version of Alexa. An earlier version gave the day incorrectly.