Amazon’s Quarterly Outlook: Increased Investment in AI
Amazon.com has projected its profits for the current quarter without the input of analysts, signaling the company’s continued commitment to expanding its artificial intelligence services. In a recent statement, Amazon announced that its operating income is expected to fall between $14 billion and $18 billion for the period ending in March. In contrast, analysts had anticipated an average operating income of $18.2 billion, as per available market data.
Sales for the first quarter are projected to be approximately $155.5 billion, which is lower than the previously estimated $158.6 billion.
CEO Andy Jassy is actively working to streamline costs while reinforcing the company’s core areas, which include e-commerce, cloud computing, and advertising services. Under its new strategic direction, Amazon aims to position itself as a leading provider of artificial intelligence products and services, leveraging a billion-dollar investment in local data centers and advanced chips designed to handle AI-related tasks and compete against firms like Nvidia.
Following the announcement, Amazon’s shares declined by 3.5% in after-hours trading, closing at $238.82 in New York. Nonetheless, the stock has rebounded with an 8.9% gain year-to-date, following a significant 44% increase in 2024.
Market Reactions and Analyst Insights
While Amazon’s overall quarterly performance appeared positive, Jill Louor, an analyst at DA Davidson & Co, indicated that “investors’ immediate concerns stem from the first-quarter projections, which fell short of expectations, primarily attributed to the impact of substantial currency declines and the conclusion of a leap year.” The company noted that the additional day in 2024’s first quarter had bolstered sales by approximately $1.5 billion.
Amazon Web Services (AWS) reported a revenue increase of 19% to $28.8 billion for the quarter ending December 31, aligning with analyst expectations. This growth marks the third consecutive quarter of 19% growth for the unit. The operating income from AWS reached $10.6 billion, surpassing the anticipated $10.1 billion.
In the competitive cloud computing landscape, rivals Alphabet and Microsoft have also reported weaker-than-expected quarterly results. Alphabet’s shares experienced a sharp decline following disappointing sales data, while Microsoft remarked that its cloud sales growth was hindered by insufficient data centers to meet the rising demand for AI products.
As noted by Sky Canavis, an analyst at E Marketer, “AWS growth has not met expectations, reflecting similar constraints faced by Google and Microsoft in the cloud sector.”
Investment Strategy and Operational Metrics
In 2024, Amazon’s total expenditures on property and equipment are projected to be around $83 billion, with a significant portion allocated to the race for artificial intelligence advancements. In the fourth quarter alone, the company spent $27.8 billion on these assets, exceeding analyst expectations of $22.3 billion.
Quarterly revenue increased by 10% to $187.8 billion, while the net operational profit reached $21.2 billion, outpacing the estimated $18.8 billion. Total operational expenses grew by 6.2% to $166.6 billion, marking the eighth consecutive quarter in which Amazon’s revenue has escalated at a pace that outstrips its rising costs.
