Amazon Stock Slides: AI Spending and Soft Forecast Spark Concerns

Amazon's stock took a hit on Friday, with shares falling more than 4% in extended trading after the tech giant reported mixed results for the fourth quarter of 2024. The company's cloud computing unit, Amazon Web Services (AWS), missed revenue expectations, and its guidance for the first quarter of 2025 fell short of analysts' estimates. Investors are now grappling with concerns about Amazon's heavy investment in artificial intelligence (AI) and the potential impact on its profitability in the short term.

Amazon's Q4 earnings beat expectations, with revenue rising 10% to $187.79 billion and net profit nearly doubling to $20 billion. However, AWS revenue growth slowed to 19%, lagging behind Microsoft and Google. The company's advertising revenue also missed expectations, and its outlook for the first quarter of 2025 was lower than expected, partly due to negative currency effects.

Amazon's CEO, Andy Jassy, attributed the slower AWS growth to capacity constraints in meeting AI service demand. The company plans to invest heavily in AI infrastructure and data center expansion in 2025, with a projected capital expenditure of $105 billion, up from $75 billion in 2024. This significant investment is driven by the growth of generative AI, which has surged in popularity since the launch of ChatGPT in late 2022.

While Amazon's AI spending is expected to bolster its long-term positioning and provide several benefits for the company and its customers, such as competitive advantage, improved customer experience, cost savings, and new revenue streams, investors are concerned about the potential impact on short-term profitability. The increased capital expenditure will put a damper on profitability in the near term, as the company invests in AI infrastructure and data center expansion.

Amazon's stock price has been volatile in recent months, with shares surging in late 2022 following the launch of ChatGPT and then retreating in early 2023 amid concerns about the company's slowing growth and increased competition in the AI market. The recent breakthrough of Chinese AI startup DeepSeek has also raised questions about the necessity of large-scale investments in AI development.

As Amazon continues to invest heavily in AI, investors will be closely watching the company's progress and the potential impact on its profitability and competitive position. While the long-term benefits of AI spending are clear, the short-term impact on Amazon's stock price and earnings remains uncertain. Investors should monitor Amazon's AI developments and assess the company's ability to maintain its competitive edge in the rapidly evolving tech landscape.