It's possible, but I think they could've been a lot more clear about that. With what they're saying now, they're leaving things in a pretty grey area, which is not good for developers thinking of building "good" apps that use encryption.

An app like Cryptomator may use Amazon Drive APIs to encrypt data before it arrives in the Amazon Drive. Does that cover Cryptomator? Well, we don't know, because it's so vague.

It could also very well be a purposeful thing, if Amazon wants to data mine all the backed-up data. Plus, it may want to make it easier to give the data to law enforcement (or not get in trouble itself for having that data stored in an encrypted form), and so on.