Amazon stock fell ahead of the open Friday after the tech giant’s fourth-quarter results on Thursday afternoon presented a mixed picture of the business.
Earnings per share beat expectations, coming in at $1.86, compared to Wall Street’s consensus estimate of $1.49, according to FactSet. Revenue for the quarter reached $187.8 billion, against expectations of $187.3 billion, and up 10% on the year.
But the company’s important cloud unit, AWS, provided the big disappointment for investors. AWS saw growth of 19% to $28.8 billion, missing expectations of $28.9 billion. The unit is closely watched because it’s a profit machine for Amazon. In the latest quarter, AWS had a 36.9% operating profit margin, versus 6.6% for the rest of Amazon. Though AWS represented only 15% of Amazon revenue, it accounted for over half the operating profit.
The stock was down 2.6% to $232.60 in premarket trading Friday.
Amazon’s advertising business is the other fast-growing part of Amazon, rising 18% on the year to $17.3 billion. Like AWS, that represented a narrow miss, with analysts expecting $17.4 billion.
Another disappointment was Amazon’s revenue outlook for the first quarter, which fell well short of expectations at $153.3 billion at the midpoint, up 7% from 2024, versus a $158.6 billion analysts’ estimate. Its operating profit outlook was $16.0 billion at the midpoint, versus $18.3 billion expected.
Amazon also provided guidance for 2025 capital expenditures at around $105 billion, driven by its AI data center buildout. That figure would be a 27% increase from 2024, which was 57% higher than the previous year.
The topic of the — DeepSeek R1, and the lower AI cost structure that it may presage — came up on the earnings call. Some have predicted it will lead to lower revenue for AI cloud services.
“We have never seen that to be the case,” CEO Andy Jassy said on the call. “What happens is companies will spend a lot less per unit of infrastructure, and that is very, very useful for their businesses. But then they get excited about what else they could build that they always thought was cost prohibitive before, and they usually end up spending a lot more in total on technology once you make the per unit cost less.”
Earnings results from tech peers in recent days have put a microscope on AWS expectations. On Jan. 29, Microsoft said revenue from Azure and other cloud services increased by 31% in its latest quarter, a deceleration from a 33% increase in the previous quarter. Then on Tuesday, Google parent Alphabet reported fourth-quarter cloud revenue below Wall Street estimates.
Despite this, BofA Securities analyst Justin Post, who rates Amazon as a Buy with a $255 price target, wrote that “cloud demand likely remained robust in 4Q, and [we] anticipate strong AI demand to continue into 2025.”
In trend with fellow tech giants, Amazon has been spending big on AI. Management said on the earnings call in October that the company expected capital expenditures of $75 billion in 2024, primarily to “support the growing need for technology infrastructure.”
Investors will be listening to Amazon’s earnings call for an update on its spending plans for the current year. Meta Platforms, Microsoft, and Alphabet all laid out plans in recent days to continue spending billions of dollars on AI investments — despite concerns from shareholders that this spending may be overkill.
The tech sector was also thrown for a loop last week: Social-media posts said that Chinese start-up DeepSeek had developed an AI model similar to ChatGPT for a lot less money than what U.S. tech companies have spent on AI. But among the uncertainty, some analysts think there could be benefits to tech companies like Amazon if DeepSeek’s innovations lead to lower costs down the line.
“Over time, we believe Amazon could be one of the beneficiaries from the recent emergence of DeepSeek, as Amazon’s AI platform is designed to accommodate open-source models, and a potentially lower cost of integrating AI into its products and services could be margin accretive longer term,” analysts at Canaccord Genuity wrote on Jan. 30.
There are questions about how tariffs could impact Amazon’s revenue guidance. President Donald Trump announced over the weekend that he’d implement 10% tariffs on China and 25% tariffs on Canada and Mexico. The White House paused the Mexican and Canadian tariffs on Monday, but the levies on China have gone into effect.
Amazon’s most recent 10-K says that because China-based sellers account for significant portions of third-party seller services and advertising revenue, regulatory and trade restrictions are factors that could “adversely affect our operating results.”
Amazon shares have gained 7.7% so far this year, compared with the 3% increase in the S&P 500. The stock is trading at 37.8 times earnings expected over the next 12 months.