Amazon Moves to Dominate Europe's Cloud Market

Amazon (AMZN) announced plans on Wednesday, June 19, to invest €8.8 billion in expanding its Frankfurt cloud computing subsidiary, Amazon Web Services (AWS), due to growing demand for AI-driven technologies. The company said another €2.2 billion will be funnelled into logistics, robotics and two new corporate offices in Germany.

Moreover, AWS plans to invest €7.8 billion in the AWS European Sovereign Cloud, which will launch its first AWS Region in Brandenburg by the end of 2025, ensuring compliance with EU data protection laws. This will bring the total planned investment in Germany alone to €17.8 billion. 

AWS also considered multi-billion investments to expand its data centres in Italy. In addition, it revealed another €15.7 billion investment in Spain's data centres, ramping up an older €2.5 billion plan. 

Notably, the public cloud market in Europe is projected to grow by 17.90%  between 2024 and 2029,  resulting in a market volume of US$413.20bn in 2029, with the cloud computing market set to expand at a 23.52% CAGR to $470.13 billion by 2032. However, only time will tell if these projections will materialise.

Impact on Germany and Europe

Since 2010, Amazon has invested over €77 billion in Germany, helping to create jobs and contribute to the country's economy. The new €10 billion investment will create more than 4,000 jobs in Germany this year alone, with the German workforce set to grow to 40,000 by the end of 2024, more than double the workforce of 2019. As a result, Amazon will command around 0.1% of Germany's workforce this year 2024 and support an average of 2,800 full-time jobs each year. It is also estimated to contribute €17.2 billion to Germany's GDP through 2040. 

Chancellor Olaf Scholz welcomed Amazon's investment, saying it showed that Germany was still "an attractive business location." The government's focus was on "strengthening our competitiveness", he said. 

Moreover, it may be interesting to note that  Amazon has not only supported Germany's expansion. It has created over 150,000 jobs across 21 EU member states, including over 35,000 professional roles and 10,000 electronic communication roles. This has enabled over 125,000 European SMEs to sell over 1.2 billion products worth €30 billion in sales in 2022. According to McKinsey, more than 90% of European companies rank their cloud programs a priority, and more than a third regularly discuss progress at the executive committee level.

Initiatives and Partnerships

Beyond its latest projects, Amazon seems to have a broader strategy. Just yesterday, Wednesday, June 19, Just Eat Takeaway (TKWY.AS) and Amazon announced a partnership to offer free delivery to Amazon Prime members in Germany, Austria, and Spain. Prime members will receive early access to Just Eat’s Plus loyalty program and get free delivery on orders over €15. This move came after Amazon expanded its partnership with Just Eat Takeaway's US business, Grubhub, in May.

Furthermore, at “Mobility Re-Imagined | Move 2024,” the world’s number one tech mobility event, Amazon's Principal Programme Manager said that the company uses an AI model called Packaging Decision Engine that has "reduced packaging by more than 40%, avoiding two million tons of packaging". In fact, over "50% of Amazon's shipments in Europe come in reduced, recyclable packages". She also said that Amazon is launching drone delivery in Italy, the UK, and the US in 2024, introducing new electric trucks and announcing that 100,000 Rivian (RIVN) electric vans will be delivered by 2030.

Aside from these developments, Amazon plans to build England's tallest onshore wind turbine at one of its warehouses in Swindon to meet its net zero targets by 2040.

In the US, Amazon expanded its generic drug savings program RxPass to Prime members on Medicare, making savings of $70 available to over 50 million Medicare members. In addition to Amazon Pharmacy, it is also pushing into healthcare through telehealth and its acquisition of One Medical.

Analyst Insights

Some analysts believe Amazon is well-positioned to continue improving its core margins and cost structure, which could drive further revenue and growth. 

For example, Bank of America analyst Michael Hartnett ranks Amazon 1st on his "AI Big Ten" list due to its AWS Cloud business which saw operating margins cross 37% in Q1 2024 and revenue growth of 12.5% YoY. Goldman Sachs's (GS) Eric Sheridan raised Amazon's price target in May to $225 per share from $220 per share. To back the trend, Cathie Wood's Ark (ARKK) Invest funds bought more shares of Amazon this Monday, June 17. However, some analysts think there are under-the-radar AI stocks that offer greater potential. (Source: Yahoo Finance)

Unionisation Concerns

Naturally, it's not all rosy. Amazon workers at a warehouse in Staten Island voted to affiliate with the Teamsters union by more than 98%.

In the UK, over 3,000 workers are voting for a month on recognising the GMB union, which would be the first time Amazon has had to recognise a union there.

Despite Amazon's opposition to unions, efforts may improve worker conditions but also increase the company's costs.

Conclusion

Amazon has invested over €77 billion in Germany since 2010, helping to create jobs and contribute to the country's economy. But now it plans to invest another €17.8 billion in a recent move to dominate Europe's growing cloud market due to AI demand. 

Amazon has not only supported Germany's expansion but has created over 150,000 jobs across 21 EU member states and plans to invest more in Europe, which may be a reason analysts believe it is well-positioned to continue driving further growth in the long term. 

However, short-term concerns about unionisation and worker conditions in the US and UK remain, which could increase the company's costs.