Yes, it is a tradeoff. I don't know about AWS Lambda specifically but this sort of behaviour can be mitigated with pre-warming. So you always maintain N% extra

Yes, it is a tradeoff. I don't know about AWS Lambda specifically but this sort of behaviour can be mitigated with pre-warming. So you always maintain N% extra capacity. Then you allow the instance to start up before actually sending any requests there. Of course if you scale up >N% faster than your instances can start up you will still hit a cold start, but if your app starts relatively quickly and you maintain a decent buffer that should be fairly rare.