Lots of interesting work is being done in this area (Currently doing research around serverless at the moment). Cold start up times still remain a pretty large issue (125ms start up for VM is still quite large) but some interesting papers trying to attack this, through strategies like snapshotting!
These 125ms are only the startup time of the MVM and don't include additional latency introduced by optimizing the code package and the involvement of the placement service.
You can also avoid the cold start penalties entirely, if you're willing to pay extra for provisioned concurrency [1].
This seems to be a solution that comes at the cost of the consumer which is fine if they want to pay for it, and seems to be an option provided for more latency sensitive applications.
Obviously, one could eliminate the cold start issue in general by just constantly paying for a running EC2 instance.
But cold start is still an issue for the provider as cold start is a cost to them, even reducing cold start of internal runtimes would be a massive benefit (For example pre-warmed JITs). Better cold start times means better bin packing for their services, and overall less cost to everyone.
You can also avoid the cold start penalties entirely, if you're willing to pay extra for provisioned concurrency [1].
[1]: https://docs.aws.amazon.com/lambda/latest/dg/configuration-c...