Amazon's Q4 Earnings Soar, But AI Investments and Guidance Raise Questions

Andy Jassy Just Delivered Fantastic News for Amazon Investors | The Motley Fool

Amazon (AMZN -1.65%) just reported a blowout quarter, but its stock fell after the results came out. Although the quarter itself was spectacular, management's guidance was underwhelming; the lower end of its revenue guidance would be Amazon's lowest quarterly year-over-year growth ever. That's one pessimistic take on the report, and one that seems to be shared across the market. Amazon stock is down 3% since the report came out. Are investors taking this a little too far? I would note that while it would be the slowest growth in Amazon's history, this isn't the first time management has guided so low. It guided for a 4% to 8% increase in revenue for the 2023 first quarter, exactly two years ago, and it came in ahead of even the high guidance with a 9% increase. Amazon tends to beat its guidance, although there's no guarantee. But investors shouldn't let a potentiality, which may not even happen, overshadow some of the other excellent points in Amazon's story. Amazon is a leader in two huge growth industries, not to mention several other smaller ones, and CEO Andy Jassy just gave investors some amazing news. For the 2024 fourth quarter, management was guiding for: Amazon reported: Net income increased from $10.6 billion, or $1 per share, to $20 billion, or $1.86 per share. Sales from Amazon Web Services (AWS), the cloud computing business, increased 19% year over year to $28.8 billion, slightly below Wall Street's expectations. The market was focused on the first-quarter guidance of 5% to 9% growth in revenue, or $151 billion to $155.5 billion. The analyst consensus expectation was $158.5 billion. Jassy attributed the lower guidance to foreign exchange headwinds. Amazon is guiding for operating income of $14 billion to $18 billion. This target range spans from an 8.5% decline to a 17% increase from $15.3 billion last year. It's reasonable for the market to be disappointed by the guidance, but it's so important at times like this for investors to play the long game. The stock didn't plunge, and it could recover quickly. That brings me to Amazon's fantastic news. Jassy said he's put a lot of thought into how things will look a few years from now, and generative artificial intelligence (AI) is going to play a huge role in every application that's built. The truth is that there was so much positive news in his explanation of where Amazon is going with this that it's hard to distill it into one quote or idea, but Jassy started off by saying, "It's hard to overstate how optimistic we are about what lies ahead for AWS' customers and business." He explained further: "While it may be hard for some to fathom a world where virtually every app has generative AI infused in it, with inference being a core building block just like compute, storage, and database, and most companies having their own agents that accomplish various tasks and interact with one another, this is the world we're thinking about all the time. And we continue to believe that this world will mostly be built on top of the cloud with the largest portion of it on AWS." The market was buzzing about Amazon's capital spending over the next year and what it means for Amazon's opportunities. Jassy said that Amazon spent $26.3 billion in capital expenditures in the fourth quarter, mostly on AI for AWS. He said that's a reasonable expectation for a 2025 run rate, totaling more than $100 billion. Amazon has everything to gain from investing in the AI business and a lot to lose if it doesn't. It's the top cloud computing company in the world, with 31% of the market, and Microsoft's Azure is a distant second with 20%. Keeping that lead requires innovation in a fast-changing field. Microsoft has said it would spend nearly $94 billion in developing AI this year, and Amazon needs to be right up there along with it. AWS continues to lead, cementing deals with high-profile names like Intuit, PayPal, and Norwegian Cruise Line in the fourth quarter, among many more. Jassy has said that Amazon's AI capabilities are drawing greater interest in its cloud services, since that's where companies can get the most out of using AI in development. Amazon offers a massive assortment of solutions and tools for all kinds of businesses and all sizes. It recently added DeepSeek as a cheaper option for its Bedrock customers, who have a choice of large language models (LLMs) to use in developing applications, and it also recently unveiled its own cheaper option called Nova, which it says matches performance but is around 75% cheaper than popular models. This huge investment is going to show up in Amazon's earnings and likely is contributing to the lower expected growth in operating income in the first quarter. But Amazon is forward thinking, and this move could lead to huge benefits down the line.

Amazon Just Hit a Major Milestone That You Don't Want to Ignore | The Motley Fool

Amazon (AMZN -1.65%) surprised investors last week with its underwhelming first-quarter guidance. The stock fell, but it's already on the rebound as smart investors see beyond somewhat disappointing quarterly guidance. After all, there was a lot to love about the quarter, and even more to love about how Amazon is leveraging its dominant position in cloud computing to boost its artificial intelligence (AI) business. Between all the talk about AI and guidance, there was an important milestone Amazon reached that got overshadowed. But it bodes well for Amazon's future. By most accounts, Amazon had a stellar fourth quarter. Revenue increased 10% year over year, coming in at the high end of guidance, which was 7% to 11%. CEO Andy Jassy said that it would have reached 11% without foreign exchange impacts, which negatively affected Amazon due to the strong dollar. Revenue growth was solid, but operating income growth was spectacular. It increased 61% over last year to $21.2 billion, exceeding expectations of $16 billion to $20 billion, up from $13.2 billion last year. As usual, Amazon Web Services (AWS) provided an outsize portion of operating income -- exactly half. However, it was a much lower percentage than in previous quarters. Data source: Amazon's quarterly reports. AWS operating income increased 47% year over year in the fourth quarter, lower than the whole. Amazon is investing more in AWS' generative AI program, which could be pulling down AWS' profits. It spent about $75 billion on capital expenditures (capex) in 2024, a large increase from $48 billion in 2023. It could also mean some of the other businesses are pulling more of their own weight. Amazon has been restructuring many areas of the e-commerce business to become more efficient, and it looks like it's paying off. The "last mile" is usually the most expensive part of the process, and now that Amazon has switched to a regional distribution system, it's a lot cheaper to get products to customers who are now closer. It also uses more robotics in the process, making up some of the cost of human labor. Some of its service-based businesses, which are higher-margin, are also growing quickly. It's seeing a positive reaction to its ad-supported streaming tier, and advertising segment sales increased 18% year over year. With the high increase in operating income, Amazon hit a new milestone in the fourth quarter with its highest-ever quarterly and annual operating margins. Amazon considers operating income its baseline profitability metric, but it also reported its highest-ever annual profit margin at 9.3%. These margins mean that Amazon is at peak profitability, historically speaking. One of the talking points experts have been discussing after the fourth-quarter report is management's investment in the AI business. Jassy said that the fourth-quarter figure of $26.3 billion in capex, most of which is going to AI, was a good frame of reference for what it expects as an annual run rate in 2025. That would be a total of more than $105 billion. While that could appear drastic, Amazon sees it as crucial and necessary. Jassy has repeatedly said that the AI opportunity is massive and nearly unprecedented, and Amazon's visionary businesses and capabilities to bring it to fruition is how it has become the dominant player in e-commerce and cloud computing. Jassy explained that generative AI is going to become a standard element of application development, like storage and databases. As the leader in cloud computing, Amazon can benefit by investing early and gaining an edge in this space. The downside of this is that the capex is likely to impact Amazon's earnings negatively over the short term. After the phenomenal profitability it reported in the fourth quarter, management is guiding for a major slowdown in the 2025 first quarter. It's guiding for operating income in the range of $14 billion to $18 billion, compared to $15.3 billion in the year-ago period. Amazon isn't likely to keep this peak profitability in the near term, but it's likely to get there again at some point. It continues to refine its fulfillment process, and it's making strides in the higher-margin businesses. AWS is a high-margin business, and with the new, lower-cost developments like DeepSeek and Amazon's own new large language model, Nova, AI is likely to become a lot cheaper to run as the tech advances. There are many reasons to be excited about Amazon and its potential today, and its progress in profitability is one of them.

Amazon EPS Jumps 86%, Beats Forecasts | The Motley Fool

The earnings reveal standout financial achievements, with revenue rising to $187.8 billion, exceeding the $187.3 billion expectation. This growth is primarily credited to Amazon Web Services (AWS) and significant international sales improvements. Diluted earnings per share leaped to $1.86, well above the $1.49 projection. Overall, the quarter showcases Amazon's robust financial momentum, notwithstanding impending capital expenditure challenges. Source: SEC filings. Analyst estimates provided by FactSet. Amazon is a leader in both e-commerce and cloud services, known for its wide range of products and fast delivery options worldwide. Its main revenue sources include online retail, cloud computing (through AWS), and digital advertising. AWS, in particular, stands out as a hub for innovation, offering scalable computing power and services globally. This segment underpins Amazon's profitability due to its generous profit margins. Amazon is strategically expanding its cloud services and optimizing its logistics operations for e-commerce. Key areas of focus include enhancing Prime services and integrating advanced technology like artificial intelligence (AI) into AWS offerings. Growth in subscription services, particularly Amazon Prime, strengthens its expansive ecosystem by increasing customer retention and enabling cross-selling. Amazon reported major financial strides in Q4 2024, driven largely by AWS. The segment achieved a 19% sales growth to $28.8 billion, enhancing its operating income by 48% to $10.6 billion. Investments in AI, like the introduction of the Trainium2 AI chip, are bolstering AWS capabilities and delivering competitive advantages. In North America, Amazon's sales rose to $115.6 billion, marking a 10% increase year-over-year and driving a 43% boost in operating income. This growth was supplemented by a record-breaking Black Friday and Cyber Monday, as well as improved delivery performance for Prime members. Sales in international markets also rebounded, moving from a prior loss to a current operating income of $1.3 billion, with sales rising 8% to $43.4 billion. Advertising revenue, a growing segment for Amazon, increased 18% as brands continue to leverage Amazon's vast customer base. These gains underscore advertising's essential role in diversifying income streams beyond retail. Nonetheless, Amazon faces challenges with hefty capital expenditures, driven by AWS expansions and fulfillment enhancements aimed at improving service delivery. It anticipates that these investments will exert pressure on operating margins going forward. Management's expectations for Q1 2025 indicate revenue between $151 billion and $155.5 billion, incorporating potential foreign exchange impacts. This forward guidance suggests a 5% to 9% growth over Q1 2024. Amazon's future looks promising with continuous investment in its foundational segments. AWS remains central; strategic advancements in AI and expanding its server infrastructure are anticipated to enhance AWS's growth trajectory. However, high capital outlay linked to such expansions will require careful cost management to maintain profit levels. Investors should watch Amazon's ongoing efforts to propel e-commerce efficiency and widen AWS's global footprint. Expected growth in subscription and advertising services also presents opportunities for sustained revenue diversification.

Amazon's stock dipped despite strong Q4 sales. Here's why

Amazon on Thursday reported better-than-expected revenue and profits for the holiday shopping period, but its stocks dipped in after-hours trading due to disappointing guidance for the current quarter. The Seattle-based e-commerce and technology company said its revenue for the October-December period totaled $187.8 billion, a 10% jump compared with the same period in 2023. Profits came out to $20 billion while earnings per share reached $1.86, higher than the $1.49 that analysts surveyed by FactSet had anticipated. But the company said it expected revenue for the current quarter to be between $151 billion and 155.5 billion, lower than the $158.56 billion that analysts were expecting. The guidance anticipates "an unusually large, unfavorable impact" from foreign exchange rates, it said. Amazon is the biggest online shopping destination in the U.S. and has long been a beneficiary of consumer spending during the holidays. As it has done in recent years, the company in October began offering promotions intended to lure early holiday shoppers. It advertised other discounts during the three-month period, including on major sales days such as Black Friday and Cyber Monday. Amazon on Thursday reported it saw $75.5 billion in revenue for its online shopping business, up 7% from the same period in 2023. Across the retail industry, holiday sales in November and December were better than expected compared with the previous year as lower inflation on holiday goods enticed shoppers to buy, according to The National Retail Federation. Online shopping also saw record sales levels, Adobe Analytics reported in January. Sales for Amazon Web services, the company's prominent cloud computing unit, rose 19% during the fourth quarter. But it fell slightly below analysts expectations. Amazon is one of the biggest players in the competitive tech race around generative artificial intelligence. Like other tech companies, it has ramped up investments in the technology and is spending billions to expand data centers that support AI and cloud computing. The company is also spending money on other equipment, including its own computer chips and those developed by Nvidia. It has also rolled out its own AI models and integrated the generative AI into other parts of its business. In the fourth quarter, Amazon reported spending $27.8 billion on property and equipment, significantly higher than the same period in 2023. During a call with analysts on Thursday, Amazon CEO Andy Jassy said capital expenditures for the quarter came out to $26.3 billion, most of which was geared towards AI and AWS. "We think virtually every application that we know of today is going to be re-invented with AI inside of it," Jassy said. "I think both our business, our customers and shareholders will be happy medium-to-long term that we're pursuing the capital opportunity and the business opportunity in AI." Jassy added during the call that Amazon, like many others, was "impressed" by DeepSeek, the Chinese artificial intelligence company whose chatbot recently became the most downloaded app in the U.S. Amazon's quarterly report comes as the retail industry is absorbing a new 10% tariff President Donald Trump imposed on Chinese imports on Tuesday. Tariffs on Canada and Mexico have been put on hold for about a month. Trump also threw out a trade exemption that allowed low-value shipments from China to bypass duties, a loophole that had given an advantage to China-founded e-commerce firms, such as Shein and Temu. The new tariffs could benefit Amazon by increasing costs for its competitors. But it would also impact Chinese sellers who connect with American consumers on the company's shopping platform. Furthermore, it could raise prices on a recently-launched online storefront that Amazon set up to ship low-cost products directly from China. The storefront, called Amazon Haul, was Amazon's answer to Shein and Temu. Additionally, analysts from Morgan Stanley wrote in a Monday note that Amazon's first-party retail business, though which the company sells products purchased from manufacturers, has the highest exposure to the tariffs. The analysts estimate 25% of the merchandise sold through that business comes from China.

Amazon reports strong earnings for Q4, but stocks dip due to outlook for the 1st quarter

The Seattle-based ecommerce and technology company said its revenue for the October-December period totaled $187.8 billion, a 10% jump compared to the same period in 2023. Profits came out to $20 billion while earnings per share reached $1.86, higher than the $1.49 that analysts surveyed by FactSet had anticipated.Amazon on Thursday reported better-than-expected revenue and profits for the holiday shopping period, but its stocks dipped in after-hours trading due to disappointing guidance for the current quarter. The Seattle-based ecommerce and technology company said its revenue for the October-December period totaled $187.8 billion, a 10% jump compared to the same period in 2023. Profits came out to $20 billion while earnings per share reached $1.86, higher than the $1.49 that analysts surveyed by FactSet had anticipated. But the company said it expected revenue for the current quarter to be between $151 billion and 155.5 billion, lower than the $158.56 billion that analysts were expecting. The guidance anticipates "an unusually large, unfavorable impact" from foreign exchange rates, it said. Amazon is the biggest online shopping destination in the U.S. and has long been a beneficiary of consumer spending during the holidays. As it has done in recent years, the company in October began offering promotions intended to lure early holiday shoppers. It advertised other discounts during the three-month period, including on major sales days such as Black Friday and Cyber Monday. Amazon on Thursday reported it saw $75.5 billion in revenue for its online shopping business, up 7% from the same period in 2023. Across the retail industry, holiday sales in November and December were better than expected compared with the previous year as lower inflation on holiday goods enticed shoppers to buy, according to The National Retail Federation. Online shopping also saw record sales levels, Adobe Analytics reported in January. Sales for Amazon Web services, the company's prominent cloud computing unit, rose 19% during the fourth quarter. But it fell slightly below analysts expectations. Amazon is one of the biggest players in the competitive tech race around generative artificial intelligence. Like other tech companies, it has ramped up investments in the technology and is spending billions to expand data centers that support AI and cloud computing. The company is also spending money on other equipment, including its own computer chips and those developed by Nvidia. It has also rolled out its own AI models and integrated the generative AI into other parts of its business. In the fourth quarter, Amazon reported spending $27.8 billion on property and equipment, significantly higher than the same period in 2023. Most of the spending was geared towards AI and AWS, Amazon CEO Andy Jassy said during a call with analysts on Thursday. "We think virtually every application that we know of today is going to be re-invented with AI inside of it," Jassy said. "I think both our business, our customers and shareholders will be happy medium-to-long term that we're pursuing the capital opportunity and the business opportunity in AI." Jassy also said during the call that Amazon, like many others, was "impressed" by DeepSeek, the Chinese artificial intelligence company whose chatbot recently became the most downloaded app in the U.S. Amazon's quarterly report also comes as the retail industry is absorbing a new 10% tariff President Donald Trump imposed on Chinese imports on Tuesday. Tariffs on Canada and Mexico have been put on hold for about a month. Trump also thew out a trade exemption that allowed low-value shipments from China to bypass duties, a loophole that had given an advantage to China-founded e-commerce firms, such as Shein and Temu. The new tariffs could benefit Amazon by increasing costs for its competitors. But it would also impact Chinese sellers who connect with American consumers on the company's shopping platform. Furthermore, it could raise prices on a recently-launched online storefront that Amazon set up to ship low-cost products directly from China. The storefront, called Amazon Haul, was Amazon's answer to Shein and Temu. Additionally, analysts from Morgan Stanley wrote in a Monday note that Amazon's first-party retail business, though which the company sells products purchased from manufacturers, has the highest exposure to the tariffs. The analysts estimate 25% of the merchandise sold through that business comes from China.

Amazon reports strong earnings for Q4, but stocks dip due to outlook for the first quarter

Amazon has reported better-than-expected revenue and profits for the holiday shopping period Amazon on Thursday reported better-than-expected revenue and profits for the holiday shopping period, but its stocks dipped in after-hours trading due to disappointing guidance for the current quarter. The Seattle-based e-commerce and technology company said its revenue for the October-December period totaled $187.8 billion, a 10% jump compared with the same period in 2023. Profits came out to $20 billion while earnings per share reached $1.86, higher than the $1.49 that analysts surveyed by FactSet had anticipated. But the company said it expected revenue for the current quarter to be between $151 billion and 155.5 billion, lower than the $158.56 billion that analysts were expecting. The guidance anticipates "an unusually large, unfavorable impact" from foreign exchange rates, it said. Amazon is the biggest online shopping destination in the U.S. and has long been a beneficiary of consumer spending during the holidays. As it has done in recent years, the company in October began offering promotions intended to lure early holiday shoppers. It advertised other discounts during the three-month period, including on major sales days such as Black Friday and Cyber Monday. Amazon on Thursday reported it saw $75.5 billion in revenue for its online shopping business, up 7% from the same period in 2023. Across the retail industry, holiday sales in November and December were better than expected compared with the previous year as lower inflation on holiday goods enticed shoppers to buy, according to The National Retail Federation. Online shopping also saw record sales levels, Adobe Analytics reported in January. Sales for Amazon Web services, the company's prominent cloud computing unit, rose 19% during the fourth quarter. But it fell slightly below analysts expectations. Amazon is one of the biggest players in the competitive tech race around generative artificial intelligence. Like other tech companies, it has ramped up investments in the technology and is spending billions to expand data centers that support AI and cloud computing. The company is also spending money on other equipment, including its own computer chips and those developed by Nvidia. It has also rolled out its own AI models and integrated the generative AI into other parts of its business. In the fourth quarter, Amazon reported spending $27.8 billion on property and equipment, significantly higher than the same period in 2023. During a call with analysts on Thursday, Amazon CEO Andy Jassy said capital expenditures for the quarter came out to $26.3 billion, most of which was geared towards AI and AWS. "We think virtually every application that we know of today is going to be re-invented with AI inside of it," Jassy said. "I think both our business, our customers and shareholders will be happy medium-to-long term that we're pursuing the capital opportunity and the business opportunity in AI." Jassy added during the call that Amazon, like many others, was "impressed" by DeepSeek, the Chinese artificial intelligence company whose chatbot recently became the most downloaded app in the U.S. Amazon's quarterly report comes as the retail industry is absorbing a new 10% tariff President Donald Trump imposed on Chinese imports on Tuesday. Tariffs on Canada and Mexico have been put on hold for about a month. Trump also threw out a trade exemption that allowed low-value shipments from China to bypass duties, a loophole that had given an advantage to China-founded e-commerce firms, such as Shein and Temu. The new tariffs could benefit Amazon by increasing costs for its competitors. But it would also impact Chinese sellers who connect with American consumers on the company's shopping platform. Furthermore, it could raise prices on a recently-launched online storefront that Amazon set up to ship low-cost products directly from China. The storefront, called Amazon Haul, was Amazon's answer to Shein and Temu. Additionally, analysts from Morgan Stanley wrote in a Monday note that Amazon's first-party retail business, though which the company sells products purchased from manufacturers, has the highest exposure to the tariffs. The analysts estimate 25% of the merchandise sold through that business comes from China.

Amazon Warns of Q1 Challenges Despite Q4 Sales Boom | PYMNTS.com

Amazon might be expecting a soft Q1. Here's how you can tell: They didn't want to talk about it. Officially the company used its Q4 earnings call to issue a warning about the current quarter, saying that its result will be "subject to substantial uncertainty." The sources of that uncertainty ranged from foreign exchange fluctuations to inflation, recession and soft consumer demand. And the earnings release raised an unthinkable possibility for Amazon: a drop in operating income year over year. If the operating income from Q1 comes in on the low side of its $14 to $18 billion estimate, it could come in below the $15.3 billion logged in Q1 2024. Not that there weren't positive developments to discuss for Amazon executives Andy Jassy (CEO) and Brian Olsavsky (CFO). For Q4 the company saw growth across all segments, including a 10% increase in net sales to $187.8 billion compared to $170 billion in 2023. AWS sales saw a particularly strong 19% year-over-year increase, contributing to a substantial rise in overall operating and net income. The earnings release also highlights achievements in various sectors, such as record-breaking holiday sales, expanded same-day delivery, and significant advancements in AWS' artificial intelligence (AI) and cloud computing offerings. Operating income rose significantly to $21.2 billion, up from $13.2 billion. However, the earnings announcement and subsequent analyst call were absent some of the issues that could be expected to be in the company's short-term vision. Among them: Amazon Pharmacy expansion, a new version of Alexa expected by the end of February, details on low-priced recent addition Amazon Haul and the prospects of Amazon's physical retail interests. Instead the call was decidedly tech-heavy, focused mostly on AWS results and new AWS capabilities. AI made it onto the agenda early and often, with Jassy spending a chunk of time on the company's development of the Tranium 2 AI chip. Those chips are now being used by one of Amazon's main development partners, Anthropic. Jassy defended the AI capex number of $26 billion for Q4, which he said could be expected to be consistent through the year and would be dedicated to developing AI capabilities for AWS. He called AI "the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the internet." "For those of us who are building frontier models, we're all working on the same types of things, and we're all learning from one another," Jassy said in answer to a question about his impressions of Deep Seek. "I think you have seen and will continue to see a lot of leapfrogging between us. There is a lot of innovation to come. And if you run a business like AWS you have a core belief like we do that, virtually, all the big, generative AI apps will use multiple model types. Different customers will use different models for different types of workloads." Jassy also connected GenAI to its various eCommerce sites, and said he expected competition for Rufus, Amazon's shopping AI agent. "Most retailers will have their own terms in which they will interact with agents, and we'll be no different that way. Rufus, if you take a look at it, impacts the customer experience. And if you actually use it month to month, it continues to get better and better." Other highlights of the Amazon earnings announcement:

Amazon earnings on deck as AI spending plans test big tech rivals

Amazon shares edged higher in early Thursday trading ahead of its fourth quarter earnings report, slated for after the closing bell, amid intense investor focus on the capital spending plans of the world's biggest tech companies. Amazon (AMZN) , which alongside its world-leading online retail business runs the biggest cloud service group on the planet with a share that tops both Microsoft (MSFT) and Google parent Alphabet (GOOGL) , has largely outperformed its rivals in the $600 billion market. Amazon Web Services is expected to generate around $29 billion in revenues for the group, or around 15% of its expected overall tally for the three months ending in December, but its operating margin of around 38% makes it the most profitable group in Amazon's broad stable of retail, media and advertising businesses. It's also established itself at the forefront of the AI investment story, thanks in part to its embrace of open-source projects and its wide reach of corporate clients around the world. "Amazon earnings have long been become a bellwether for consumer spending and the overall economy, but AWS will be the focus for this earnings call," said Lee Sutar, principal analyst at research group Forrester. "Not only because AWS often keeps its parent company in the black, but because the numbers will show if Amazon can convert the vast data gravity of is customers into opportunities for generative AI buildout," she added. AI is lucrative, but costly Amazon has also been cognizant of the surging costs tied to the expansion of AI workloads, and while it remains a key purchaser of Nvidia's (NVDA) AI-powering chips, it's also developing its own Trainium processors Jazzy says will be "very compelling for customers on price performance." Development costs, however, both in terms of chips and processors as well as the data centers in which their housed, has come into stark focus for investors following the emergence of DeepSeek. The China-based startup, founded less than two years ago, claims to have built, trained and deployed an AI chatbot that has outperformed its larger rivals at a fraction of the cost. Nvidia shares, in fact, shed nearly $600 billion following the release of its latest version late last month, notching the largest single-day decline on record. Related: Analysts rework Alphabet stock price targets after earnings shock Still, the biggest data center builders, which include Microsoft, Alphabet and Meta Platforms (META) , doubled-down on their planned capital expenditures for the coming year, insisting that the larger risk in the developing AI race is investing too little, not spending too much. "Part of the reason we are so excited about the AI opportunity is, we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible," Google CEO Sundar Pichai told investors earlier this week. That's the opportunity space [and] it's as big as it comes, and that's why you're seeing us invest to meet that moment," he added. Billions on the line in AI race Google boosted its 2025 capex tally to $75 billion, topping Street forecasts by around $15 billion, while Meta has committed to spending around $65 billion. Microsoft, for its part, has signaled a capex tally of around $80 for its fiscal year ending in June. Both Microsoft and Google, however, have seen modest slowdowns in cloud revenue growth, and while they both put that down to capacity constraints, investors are starting to lose patience with the pace of capex growth that has yet to be fully monetized. Related: Analyst revisits Microsoft stock price target as DeepSeek tests OpenAI "We believe AI will generate significant revenue streams, yet how those revenues will be sliced up is the big question to track," said Paul Henderson, a senior portfolio strategist at the BlackRock Investment Institute. "One possible outcome: the big tech players now powering the AI buildout could reap most of the benefits," he added. "Yet last week's developments show there is another path: cheap, efficient and commoditized AI models that could benefit AI's end users instead of big tech." Capex plans in sharp focus That view puts Amazon's 2025 capex plans, which CEO Andy Jassy said will likely be higher than the $75 billion it was on pace to spend in 2024, in sharp focus in the group's post-earnings call. "I think we've proven over time that we can drive enough operating income and free cash flow to make this very successful return on invested capital business," Jassy told investors following the group's third quarter earnings in October. More AI Stocks: "And we expect the same thing will happen here with generative AI. It is a really unusually large, maybe once-in-a-lifetime type of opportunity," he added. "And I think our customers, the business, and our shareholders will feel good about this long term that we're aggressively pursuing it." Amazon shares were marked 0.55% higher in premarket trading to indicate an opening bell price of $237.50 each. Related: Veteran fund manager issues dire S&P 500 warning for 2025

Amazon's stock drops as cloud revenue comes up short and it doubles-down on AI spending - SiliconANGLE

Amazon's stock drops as cloud revenue comes up short and it doubles-down on AI spending Amazon.com Inc. beat Wall Street's expectations on earnings and revenue today as it delivered its fourth quarter results, but sales in its all-important cloud computing business came up short, and guidance for the current quarter was light. As a result, investors were less-than-satisfied, and Amazon's stock fell more than 4% in the late-trading session, erasing a slight gain earlier in the day. The company reported fourth quarter earnings before certain costs such as stock compensation of $1.86 per share, easily beating the Street's target of $1.49 per share. Revenue for the period came to $187.79 billion, up 10% from a year earlier and just beating the consensus estimate of $187.3 billion. Amazon's net income on the other hand was up almost 50% to $20 billion, compared to just $10.6 billion in the year ago period. The growing profit reflects the success of Amazon Chief Executive Andy Jassy's (pictured) ongoing cost-cutting campaign, which began in late 2022 and has seen the company layoff more than 27,000 employees since then, with job cuts stretching into this year. The company has boosted its profitability by cutting expenses and growing its high-margin cloud computing business, Amazon Web Services Inc. In the quarter, its operating margin, which accounts for profit remaining after deducting the costs of running its business, rose to 11.3%, up from 11% in the prior quarter and 7.8% one year ago. However, investors were likely to be concerned that AWS delivered revenue that came in just below the Street's consensus. The company reported $28.79 billion in sales from the unit, just below the target of $28.84 billion. At least, the business is growing faster than it was a year ago, with revenue up 19% during the quarter compared to 13% in the same period last year. AWS has not been able to match the growth of Amazon's competitors, with Microsoft Corp.'s Azure and Alphabet Inc.'s Google Cloud seeing cloud-related revenue rise by 31% and 30%, respectively. Even so, AWS remains much bigger than any other cloud infrastructure provider, and it's notable that those peers also missed expectations this week. The company AWS now provides 15% of its total revenue, and it continues to be a key profit driver, accounting for just over half of its net income. In the quarter, AWS delivered $10.63 billion in operating income, up 48% from the same period one year earlier. In a statement, Jassy hailed the "remarkable innovation" within AWS, especially in terms of its artificial intelligence capabilities. Among other things, he highlighted the launch of its new Trainium 2 artificial intelligence chips, its new foundation models Amazon Nova, exciting updates to Amazon Bedrock and a new release of Amazon SageMaker. "These benefits are often realized by customers (and the business) several months down the road, but these are substantial enablers in this emerging technology environment and we're excited to see what customers build," Jassy said. Staying with AI, the company also provided an update on the massive investment it has been pouring into its data center infrastructure, in order to support the industry's rapid growth. During the quarter, Amazon's capital expenditures reached $27.8 billion, which was almost double the $14.6 billion it spent one year earlier. AWS has been spending billions of dollars in order to buy up data center gear like Nvidia Corp.'s graphics processing units, which power the vast majority of the world's AI workloads today. Amazon Chief Financial Officer Brian Olsavsky said the company aims to boost its capex to $100 billion in fiscal 2025, up from $83 billion in fiscal 2024. According to him, the increased spending mainly relates to AWS, and is intended to support its AI services as well as the broader North American cloud infrastructure market. The company is stepping up its investments at a time when investors are becoming increasingly nervous about them due to the emergence of the Chinese AI startup DeepSeek Ltd. DeepSeek's R1 model has shown it can match the performance of the very best models in the business, despite claims that it costs less than $6 million to develop. That revelation caused chaos in the financial markets last week, as it challenges the assumption that technology firms must spend billions of dollars to be able to compete. Investors were reassured somewhat when Meta Platforms Inc. Chief Executive Mark Zuckerberg confidently asserted that spending billions of dollars on AI infrastructure will still provide a significant advantage, but the market remains jittery. Elsewhere, Amazon said that its advertising revenue jumped 18% to $17.3 billion in the quarter, as brands increase their spending to ensure their products are listed prominently on its popular retail website and app. Looking ahead, Amazon said it's anticipating revenue of between $151 billion and $155.5 billion in the current quarter. That surprised analysts, who had forecast sales of $158.5 billion. Amazon blamed the shortfall on the "unusually large, unfavorable impact" of foreign exchange rates, which amounts to an estimated $2.1 billion. Amazon's forecast suggests revenue growth of between 5% and 9%, and if it comes in at the lower end of that range, it would be the slowest growth in the company's history, since going public in 1997. Despite today's after-hours drop, Amazon's stock is still up 9% in the year to date, continuing the momentum that saw it rise 44% in the previous year.

What Analysts Think of Amazon Stock Ahead of Earnings

Jefferies analysts called Amazon a top pick for enterprise artificial intelligence. Amazon (AMZN) is slated to report its fourth-quarter results after the market closes Thursday, with analysts overwhelmingly bullish on the tech titan's stock. All 27 analysts covering the stock tracked by Visible Alpha have a "buy" or equivalent rating. Their consensus price target is roughly $259, about 9% above the stock's intraday price Thursday. Jefferies recently called Amazon a top pick for enterprise artificial intelligence, reiterating a "buy" rating and $275 price target for the stock, pointing to growth from Amazon Web Services and advertising opportunities. Amazon's spending on AI could also be in focus after Chinese AI startup DeepSeek rocked markets last week, as claims that it developed an AI model rivaling those of American firms at a fraction of the cost raised concerns about Big Tech's spending. When Google parent Alphabet (GOOGL), Microsoft (MSFT), and Meta (META) recently reported earnings, they stood by aggressive spending plans. Bank of America analysts said last week they see this as "AI's Sputnik moment," suggesting competition could push U.S. hyperscalers like Amazon to spend even more on AI. Amazon is projected to report revenue of $187.42 billion, up 10% year-over-year, according to estimates compiled by Visible Alpha. Earnings are expected to come in a $16.02 billion, or $1.49 per share, up from $10.62 billion, or $1 per share, a year earlier. Shares of Amazon have gained about 40% over the past 12 months, at $237.28 in early trading Thursday.