Dedicated servers are undoubtedly cheaper in some circumstances than even a well-managed AWS account. But you do need to account for redundancy (including staffing), scaling up, possibly geographic replication, etc.). Setting up a dedicated server is just the beginning and be sure to take into account all costs--as is the case on a cloud provider too of course.
That’s way your profit margins on the AWS servers is lower than self hosted ones but at least you’re making money.
Edit - And if a group of players raid a dungeon, the population of that dungeon is strictly limited, so you can park that raid on one server and don't worry at all about inter-player latency.
The bigger world is handled by slicing it up, but you still have a lot of communication going on with central databases for stuff like inventory management, chat, quests, etc. so you would probably try to keep all that within your own server racks.