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Followup question, using s3 backend, when does size of state start to become an issue? if at all?

From a Pulumi perspective, I would say that #2 is probably the best approach. It’s true that “Pulumi project ~= folder”. This doesn’t preclude you from factoring out common code and re-using that common code across all the Pulumi projects (i.e., putting common code into a `imports` directory or the like and then importing into each Pulumi program as applicable/needed).

As for state, I don’t know the answer to any size that might generate a concern, but each stack (an instance of a Pulumi project) will have its own state. Since you are separating things into separate projects/folders, then you’ll have separate stacks and therefore separate state files.

You might also find some of the recommendations in this series helpful: <https://www.pulumi.com/blog/iac-recommended-practices-code-organization-and-stacks/>