Earnings Report Shock: Amazon’s Stock Plunges as AWS Growth Slows
Amazon investors had a rough day as the company’s latest earnings report failed to impress Wall Street. Shares of Amazon plunged on Thursday, as investors took the stock down after the cloud computing unit performed worse than expected along with the first-quarter revenues and profits turned out to be quite a bit lower than perceived. The stock dropped by as much as 5% in after-hours trading after the company’s fourth-quarter earnings announcement, wiping out almost $90 billion in market cap, and settled to end the day with a loss of 4.2%.
Brian Olsavsky, the CFO of Amazon, elaborated that the company is estimating its capital expenditure in 2025 to be at the same level as in the fourth quarter of the previous year, which was $26.3 billion. The company has upped its game on investments in AI, but even then, sales forecasts for the first quarter of 2025 were disappointing and failed to meet the analysts’ forecasts. The revenue guidance for Amazon was in the range of $151 to $155 billion, which is below the market expectation of $158 billion, even with the inclusion of $2 billion’s negative impact due to Leap Day.
Growth prospects and AI-Related Expenditures:
Amazon’s cloud computing arm Amazon Web Services (AWS) grew 19% year after year to $28.79 billion, not meeting the analysts’ estimates of $28.87 billion. The company has been seeing growth restrictions due to supply chain problems, such as delays in chip deliveries from third-party suppliers. According to CEO Andy Jassy, “the inconsistent flow of computer chips had held back some growth in AWS. We could be growing faster, if not for some of the capacity constraints, and they come in the form of chips from our third-party partners coming a little bit slower than before”. A mixed narrative concerning cloud growth does not plague only Amazon, rather Microsoft and Google have experienced similar sluggishness over the past several quarters.
The massive investments in artificial intelligence and big infrastructure by the so-called Big Techs have raised the concern of investors who want to see returns from heavy AI investments. Investors turned sour as the result from Amazon was inferior following a strong third quarter, the competition in AI has become stiffer, especially with the entry of new players like China’s DeepSeek. Daniel Morgan, the senior portfolio manager at Synovus Trust said, “After very strong third-quarter numbers, this quarter the growth rates all missed. That’s what the market doesn’t want to hear. This is particularly true after the emergence of new competitors in artificial intelligence such as China’s DeepSeek”.
The Retail Business and Future AI Developments:
Amazon’s retail business extended some optimism despite the harsh environment it went through. Online expenditure grew by 7% to $75.56 billion, surpassing analyst estimates of it hitting only $74.55 billion. Advertising revenues also made a mark, climbing by 18% to $17.3 billion beneath market estimates of $17.4 billion. Amazon, Microsoft, Google, and Meta Platforms are together likely to anticipate $230 billion in capital spending for 2025, mostly due to AI-based accomplishments. Amazon’s fourth-quarter revenue stood at $187.8 billion, edging slightly higher than expectations of $187.3 billion. Net income was nearly doubled from the previous year, hitting $20 billion compared to $10.6 billion one year ago. EPS stood at $1.86 against expectations of $1.49.
Looking ahead, Amazon remains focused on its AI plans. It featured new AI models set to attract both enterprise and consumer customers at its AWS conference in December. Amazon will roll out the much-awaited Alexa generative AI voice application after significant delays caused by quality and performance worries. On one hand, retail and advertising revenues remain strong and on the other hand, with some slowdown in cloud growth, capital expenditure concerns weigh on investor sentiment. With increased competition in AI and cloud computing, Amazon will have to show that it can convert massive investments into sustainable growth for the sake of gaining its investors’ confidence.
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