Is Amazon Losing Its Edge? What the AWS Outage Means for the Cloud Wars
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode of Prof G Markets dives into two major economic stories affecting global commerce. The show begins with an analysis of Amazon Web Services' massive outage that took hundreds of services offline globally, revealing how dependent the internet has become on AWS infrastructure. (04:04) Host Ed Elson speaks with Mark Mahaney from Evercore about the implications for Amazon's stock and competitive position in the AI-driven cloud market. The second half provides a comprehensive six-month update on tariffs, featuring economist Maurice Obstfeld who explains how these policies are functioning as a regressive tax system that transfers wealth from middle-class Americans to the wealthy. (15:53)
- Main themes include AWS's critical role in internet infrastructure, Amazon's struggles in the AI narrative, and the hidden costs of tariff policies on American consumers
Speakers
Ed Elson
Host of Prof G Markets, providing sharp analysis on market movements and economic policy implications. Elson brings clarity to complex financial topics and consistently challenges conventional wisdom with data-driven insights.
Mark Mahaney
Head of Internet Research at Evercore, specializing in technology sector analysis. Mahaney is known for identifying "dislocated high quality" companies and has successfully called major tech stock movements, including his recent picks of Uber and Google.
Maurice Obstfeld
Professor of Economics Emeritus at UC Berkeley and Senior Fellow at the Peterson Institute for International Economics. Former Chief Economist at the International Monetary Fund, bringing decades of expertise in international trade and fiscal policy to his analysis of tariff impacts.
Key Takeaways
AWS Dominance Creates Systemic Risk
The Amazon Web Services outage revealed the internet's dangerous dependence on a single provider. (03:38) AWS controls one-third of the global cloud market and generates over $107 billion annually, making it the backbone of internet infrastructure. When AWS fails, it's equivalent to a power outage that cascades through millions of systems worldwide. This concentration risk should prompt businesses to seriously consider diversification strategies rather than putting all their digital eggs in one basket. The outage affected everything from banks to streaming services, demonstrating that AWS has become too critical to fail.
Amazon's AI Narrative Problem
Despite its cloud leadership, Amazon is being perceived as an AI laggard, which explains its stock underperformance. (09:01) Mark Mahaney identifies this as the single biggest factor behind Amazon's weak stock performance compared to other Mag Seven companies. While competitors like Microsoft Azure and Google Cloud show dramatic growth from AI demand, AWS growth has slowed significantly. Amazon needs to demonstrate at least 20% year-over-year growth to change this narrative and prove it hasn't missed the AI transition. The market's harsh judgment reflects genuine concerns about whether traditional cloud storage is losing relevance to AI-specific tools.
Tariffs Function as Regressive Taxation
The tariff system represents a wealth transfer from middle-class Americans to the wealthy through regressive taxation. (24:22) Maurice Obstfeld explains that tariffs predominantly hurt lower-income Americans while the corresponding tax cuts primarily benefit the rich. This recreates the inequitable tax structure of the 19th century that America deliberately moved away from when it adopted progressive income taxation. The Trump administration's strategy essentially turns back the clock over 100 years to a system that was abandoned precisely because it penalized the poor. Americans are paying an estimated 60% of the tariff burden through higher prices.
Hidden Economic Costs Are Accumulating
While tariff damages may appear muted now, they're building up beneath the surface and will become more apparent over time. (18:18) The current AI boom and momentum from previous Biden administration legislation are masking the true economic impact of tariffs. Business profits and margins are absorbing much of the cost now, but this is unsustainable and will lead to price increases down the road. The labor market is already showing signs of stress with hiring slowing to a crawl, and inflation remains stubbornly high in tariff-affected sectors. These hidden costs will compound and become increasingly difficult to ignore.
Revenue Claims Mask True Fiscal Reality
The celebrated tariff revenue numbers are misleading when examined closely and don't justify the policy. (27:01) The touted $198 billion surplus was largely accounting manipulation, with $88 billion being carried over from August due to weekend timing and $130 billion from student loan restructuring. The actual monthly result would have been a $20 billion deficit. More importantly, tariffs will generate only about $200 billion over ten years while the tax cuts create a $4 trillion deficit over the same period. The revenue argument falls apart under scrutiny, revealing that tariffs are simply an inefficient way to fund government that hurts economic competitiveness.
Statistics & Facts
- AWS controls one-third of the global cloud market and generates more than $107 billion annually, making it the dominant force in internet infrastructure. (03:38)
- Goldman Sachs data shows American consumers are shouldering approximately 60% of the current tariff burden through higher prices. (28:28)
- Tariffs raised roughly $118 billion in fiscal year 2025, but this pales in comparison to the $4 trillion deficit created by tax cuts over ten years versus $200 billion from tariffs over the same period. (23:22)