E-commerce giant Amazon posted strong earnings on Thursday, but like its major tech counterparts Microsoft and Google, its stock price fell due to concerns surrounding high AI investment costs.
The growing expenses of data-heavy artificial intelligence and the infrastructure required to support it have been a dominant theme in this earnings season, with only Meta, the parent company of Facebook, receiving positive feedback from Wall Street. Meta’s stock rose 18 percent in January as investors backed its AI strategy.
Amazon’s AWS cloud division, along with competitors Microsoft and Google, is making significant investments in AI data centers, though the returns on these investments are not yet clear.
During a call with analysts, Amazon CEO Andy Jassy defended the company’s spending plans, noting that Amazon was on track to spend $100 billion on capital expenditures in 2025, with the majority of this funding dedicated to AI. He described AI as a “once in a lifetime” business opportunity that Amazon could not afford to overlook.
However, the rise of China’s more cost-effective DeepSeek model has raised concerns about the massive spending. Despite U.S. efforts to retain AI dominance through export controls on advanced chips, DeepSeek has produced comparable results using less expensive Nvidia semiconductors.
Microsoft, a leader in generative AI through its partnership with OpenAI, has announced plans to invest approximately $80 billion in AI this fiscal year. Google, despite rapidly deploying AI under its Gemini brand, saw its cloud revenue miss expectations, despite growing 30 percent to $12 billion. Google also surprised analysts with a plan to spend $75 billion on capital expenditures in 2025.
Amazon, meanwhile, reported a 100% increase in fourth-quarter net income, reaching $20 billion, with net sales rising 10 percent to $187.8 billion. AWS continued to perform well, with sales growing 19 percent to $28.8 billion, though slightly below market forecasts. Jassy highlighted the success of what he described as “the most successful holiday shopping season yet.”
However, Amazon’s shares dropped more than 5 percent in after-hours trading, following a similar trend observed with Microsoft and Google. Despite strong profits, concerns about AI spending overshadowed the positive results.
“Amazon delivered an impressive quarter, but a slight dip in the first-quarter forecast has led to a bit of a post-earnings slump,” said Matt Britzman, a senior equity analyst at Hargreaves Lansdown.
Amazon’s first-quarter forecast for 2025 projected a 5-9 percent growth, with sales expected between $151.0 billion and $155.5 billion, which fell short of analyst expectations and contributed to the stock price decline.
Independent tech analyst Rob Enderle suggested that the cautious forecast could be a reflection of the uncertainty surrounding U.S.-China trade relations.
“Given the tariff uncertainty, Amazon is adopting a more conservative approach than it otherwise would,” he stated.
China could also pose a challenge for Apple, which posted a record profit of $36.3 billion last week. However, Apple lost its position as the top-selling smartphone brand in China last year and could be negatively impacted by the ongoing trade tensions between the U.S. and Beijing.
