Amazon fell short of Wall St expectations overnight, with its share price losing more than 4% in after-market trading. The company’s stock is still 40% higher over the past 12 months.
"Amazon’s Q4 earnings were mixed, but Wall Street will be disappointed by its forecast for the current quarter,” eToro market analyst Josh Gilbert said.
“Revenue in Q4 rose 10% year over year to US$187 billion, driven by stronger-than-expected online sales over the holiday period, while operating income also smashed estimates. However, its forecast for revenue and operating income in Q1 missed forecasts amid potential tariffs and US policy changes.
“Amazon’s AWS sales were less than expected, with 19% growth for the quarter. AWS is Amazon’s key growth driver. It makes up less than 20% of revenue but drove almost 60% of operating income at US$39.3 billion for 2024, showing just how important AI continues to be for Amazon. So, given that growth didn’t accelerate as expected, despite its spending, it is a disappointment.
“Amazon and rivals Microsoft and Google are spending big right now, but it’s clear they need to. Investors are concerned with the results from these hyperscalers because cloud growth isn’t meeting expectations. However, demand is outstripping supply, so spending is necessary to meet growing AI demand. We’re still early in this AI boom, so I don’t think investors should be too concerned when demand is this high and set to stay high throughout the year.
“This isn’t an amazing result for investors, but it’s important not to be too short-sighted and instead look ahead. As AI capacity grows, so will revenue and profit. That may not happen overnight, but some patience may be needed for investments to bear fruit."
Big tech under serious scrutiny
Analysts and technology critics continue to scrutinise Big Tech’s soaring artificial intelligence (AI) budgets, particularly after China-based DeepSeek AI unsettled markets last week by claiming it could replicate US AI advancements with significantly lower costs, chip usage, and energy consumption. Meanwhile, expectations for Amazon’s AWS cloud-computing segment followed weaker-than-anticipated growth from some of its competitors.
For the first quarter, Amazon has projected revenue between $151 billion and $155.5 billion, falling short of analysts’ expectations of $158.6 billion. The company cited an “unusually large, unfavourable impact” from currency fluctuations, estimating a $2.1 billion hit due to a stronger US dollar. Additionally, Amazon noted that last year’s sales figures included $1.5 billion attributed to the leap day.
Amazon also forecasts operating income between $14 billion and $18 billion for the quarter, below analysts’ estimates of $18.3 billion.
AI spending
During Amazon’s earnings call, executives reported fourth-quarter capital expenses of $26.3 billion, stating that this level would be “reasonably representative” for the next four quarters. A significant portion of this spending will be directed towards artificial intelligence (AI) for the company’s cloud-computing platform.
Major technology firms continue to invest heavily in AI, showing no signs of curbing their spending ambitions. Meta Platforms and Alphabet both issued capital expenditure forecasts for the year ahead that exceeded analysts’ expectations.
Amazon Chief Executive Andy Jassy acknowledged the capabilities of DeepSeek during the earnings call, noting that AI developers would continue to learn from each other and adopt different models for various applications. He explained that while lower technology costs—particularly AI’s ability to analyse data and generate predictions—do not necessarily translate to reduced overall spending, they still present advantages.
“I think it will make it much easier for companies to be able to infuse all their applications with inference and with generative AI,” Jassy said. “If you run a business like we do, we want to make it as easy as possible for customers to be successful.
“The cost of inference coming down is going to be very positive for customers and for our business.”
Integrating DeepSeek
Amazon has integrated DeepSeek into its SageMaker and Bedrock AI development platforms, expanding access to the technology. The company has also introduced its Trainium2 custom AI chip and internal foundation models, positioning its semiconductor offerings as a lower-cost alternative for developers building AI solutions.
However, during the earnings call, Chief Executive Andy Jassy cautioned that growth trends for the AWS cloud-computing business are likely to be uneven in the coming years, despite its overall strength.
“AWS is a reasonably large business by most folks’ standards,” Jassy said. “And though we expect growth will be lumpy over the next few years as enterprise adoption cycles, capacity considerations and technology advancements impact timing, it’s hard to overstate how optimistic we are about what lies ahead for AWS customers and business.”
Chief Financial Officer Brian Olsavsky echoed this sentiment, noting that margins for the segment would “fluctuate” over time due to ongoing investments.
In the fourth quarter, Amazon’s AWS segment did not exceed expectations, mirroring trends seen with cloud rivals Alphabet and Microsoft. The company reported $28.8 billion in cloud revenue for the period, slightly below analysts’ projections of $28.9 billion. This represented 18.9% year-over-year growth.