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When I create a new resource using pulumi up, it has to use the pulumi cloud to remember all the resources, right? It is like the state file in TF, but in the cloud. So the pulumi CLI has to work with the cloud?

You can use other storage for states. But I have been always using pulumi cloud. It is free based on my current usage. 

With CLI, you connect to AWS directly to provision resources, but save states into pulumi cloud. 

I just learned I can use `pulumi login --local` to use a local backend. But the cloud one is more convenient.

I use S3 to store state. read about pulumi backend