This week much was revealed about Amazon Web Services Inc.’s artificial intelligence strategy and progress, beyond what had already been gleaned from re:Invent 2023. Digging into that strategy was one of the major topics on the itinerary for theCUBE Research industry analysts John Furrier (pictured, left) and Dave Vellante (right) on the latest episode of the CUBE podcast.

At a recent analyst event, Matt Wood, vice president of AI at AWS, presented a series of seven or eight steps along the journey to adoption of AI.

“It really wasn’t linear steps, but he took us through that, started with training, and then he made a big deal out of security and privacy, which AWS has always been focused on security and privacy designed in,” Vellante said. “And, of course, it was timely.”

Vellante also referenced the summer 2023 Microsoft Exchange online intrusion from Chinese hackers, something he also discussed in a recent edition of his Breaking Analysis series. The report stated that the board found the intrusion preventable, that it should never have occurred and that “Microsoft’s security culture was inadequate and requires an overhaul.”

“The reason I brought it up, if you’re a CEO, a board member, a CIO, a CISO, a P&L manager, and you’re running your business on Microsoft,  I would be like, whoa, time out,” Vellante said. “We’re betting our AI business on Microsoft? Hang on, we’re at risk.”

While AWS didn’t hammer on it, it did say it was focused on security and did a good job of explaining that, according to Vellante. What was even worse about what happened was that Microsoft knew about what had happened, according to Furrier.

“The customers didn’t have all the facts. Nobody knew that they hid the ball,” Furrier said. “They knew about it for long before. Again, the government doesn’t trust Microsoft.”

Winners, losers and strategies in the AI bubble

In recent discussions with AI experts, a subject that has come up is whether the AI bubble will burst in the same way the dot-com bubble did. At some point it will, but it’s a good bubble and not a bad one, and it will be important to sort out the winners and losers, according to Furrier.

“We’re seeing people using AI like retrieval augmentation generation (RAG), using AI for chatbots, copilots, agents, all changing the game on the interface side,” Furrier said. “Then you have other players building real hardcore shit, like Microsoft, like Amazon. And that’s the distinction.”

Matt Wood likened the whole situation to Swiss cheese, according to Vellante, with the data corpus being like Swiss cheese. When one builds AI and builds a RAG, for example, when there is data involved, it’s pretty good.

“The problem is when there’s no data there, it’s like this big hole. So what the RAG does is the AI will start grabbing from different pieces and make stuff up,” Vellante said. “What you have to do is figure out either how to fill those holes or how not to go into those holes.”

Intel’s foundry woes and America’s dilemma

This week, shares of Intel Corp. fell after the company revealed its nascent foundry business lost $7 billion in fiscal 2023. To the company’s credit, it said it would split out the foundry business from the design business, according to Vellante.

“They’re saying break even is three years out, and they want to have 40% gross margins by 2030. I mean, it just underscores what a hard and really crappy business the Foundry business is. But it’s strategically important,” Vellante said.

It could be Intel or Taiwan Semiconductor Manufacturing Co., but it has to be someone in America, according to Furrier. America should have some foundry, but the government bailing out Intel is not the answer, he added.

“Intel’s hemorrhaging, right? Again, the question is two-fold. You’ve got to build chips. I do think that’s a national security challenge; I do agree with that,” Furrier said. “I don’t like the bailout. I don’t think Intel might have been a good call there.”

Secondly, it’s important to realize that you don’t know what you don’t know, according to Furrier. Analysts have to get it right, and when they advocate for Intel and then the company crashes and burns, they shouldn’t be invited back onto TV, he said.

“The financials of the semis, the AI and the allocation optimization is going to be critical, because you have a supply chain problem. This is the key business problem where you’ve got to deliver the chips, and the foundries are going to be backlogged,” Furrier said. “You can design all with the chips you want. There’s a need for foundry. The question is, it takes too much time to ramp them up. So this is a tough call.”

Watch the full podcast below to find out why these industry pros were mentioned:

Heather Fitzsimmons, founder and CEO of Mindshare PR
Sujata Banerjee, director and head for VMware Research Group at Broadcom
Ihab Tarazi, SVP and CTO of Dell Technologies
Nima Badiey, strategic AI enterprise partnerships leader at Nvidia
George Tchaparian, CEO of Open Compute Project Foundation
Ray Wang, principal analyst, founder and chairman of Constellation Research
Matt Wood, VP of AI products at AWS
Mary Meeker, venture capitalist
John Levinson, former Goldman Sachs VP
A.M. (Toni) Sacconaghi, Jr., managing director and senior research analyst for US IT hardware and electric vehicles at Bernstein Research
Aaron Rakers, CFA, managing director and technology analyst at Wells Fargo Se
Doug Henschen, VP and principal analyst at Constellation Research
Andy Thurai, VP and principal analyst at Constellation Research
Charles Fitzgerald, consultative strategist and investor
Charlie Bell, EVP for security at Microsoft
Don Bacon, United States congressman
R. Nicholas Burns, ambassador of the United States to the People’s Republic of China
Dion Hinchcliffe, VP and principal analyst at Constellation Research
Alex Heath, deputy editor at The Verge
Andy Jassy, president and CEO of Amazon
George Kurian, CEO of NetApp
Jyoti Bansal, CEO and co-founder of Harness
Diego Dugatkin, CPO of Box
Bobby Allen, cloud therapist at Google
Chris D’Agostino, global field CTO of Databricks
Gabe Monroy, VP of developer experience at Google Cloud
Mark Lohmeyer, VP/GM for compute and AI/ML infrastructure at Google Cloud

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Photo: SiliconANGLE