"The biggest spender among AI giants! Amazon.com, Inc. (AMZN.US) profit causes concern: This year's spending guidance of 200 billion US dollars far exceeds expectations, AWS profit growth is not satisfactory"

Amazon.com, Inc. (AMZN.US) reported its fourth quarter performance. Q4 revenue increased by 14% year-on-year to $213.4 billion, surpassing the market's general expectation of $211.5 billion; GAAP earnings per share were $1.95, $0.02 lower than expected. The company also announced plans to invest $200 billion in data centers and other equipment this year. The company reported operating profit of $25 billion, higher than the market's general expectation of $24.8 billion, and also higher than the guidance range the company previously provided of $21 billion to $26 billion. However, free cash flow over the past twelve months decreased to $11.2 billion, primarily due to a $50.7 billion increase in property and equipment purchases (excluding proceeds from sales and incentives). This increase mainly reflects investments in artificial intelligence. In the same period last year, free cash flow was $38.2 billion. Focus on cloud business growth Amazon.com, Inc.'s cloud service (AWS, the company's cloud computing division) revenue in the fourth quarter increased by 24% to $35.6 billion, marking the largest quarterly growth in over three years, surpassing the expected $34.9 billion, but this was overshadowed by a significant increase in the company's capital expenditure. The operating profit of the AWS business division was $12.5 billion. While AWS accounts for a smaller portion of Amazon.com, Inc.'s overall sales, only 15% to 20%, its cloud platform business contributes over 60% of the company's operating profit. Analysts point out that AWS's profit margin slightly declined from the same period last year, which is not a good sign - it is likely one of the factors leading to the post-trading stock price decline. In comparison, Amazon.com, Inc.'s competitors Alphabet Inc. Class C Cloud (GOOGL.US) and Microsoft Corporation (MSFT.US) Azure saw revenue growth of 48% and 39%, respectively, in the fourth quarter of last year. However, during the earnings conference call held by the company, CEO Andy Jassy was strong in tone, criticizing competitors and touting AWS's many new products. He said, "Just a reminder, achieving 24% year-over-year growth on an annualized revenue of $142 billion is very different from achieving a higher percentage growth with a much smaller base (like our competitors)." Other businesses While the cloud computing business is larger in scale and higher in profit, the e-commerce business remains Amazon.com, Inc.'s main source of income. Amazon.com, Inc. is committed to speeding up delivery to attract consumers to buy more goods, including fresh groceries. Meanwhile, Amazon.com, Inc. has closed many physical retail experiments, including grocery stores and cashier-less convenience stores under the Amazon.com brand. Amazon.com, Inc. took a $610 million impairment charge, mainly related to its physical store business, including Amazon Go and Amazon Fresh supermarkets. The company stated that it will gradually exit the physical store business, close all Amazon Fresh and Amazon Go stores, and convert some stores to Whole Foods supermarkets. The company has been making significant reforms to its retail division, with the latest initiative being the expansion of its Whole Foods stores and the construction of a 225,000 square foot mega store to compete with companies like Walmart Inc. (WMT.US) and Costco Wholesale (COST.US). Online store sales increased by 10% to $83 billion, surpassing the analysts' average expectation of $82.3 billion, indicating that despite facing increasing competition from other retailers, Seattle-based Amazon.com, Inc. remains the top destination for online shoppers. Analyst Sky Canaves from Emarketer stated in a press release, "The core retail business maintained strong growth during the critical holiday season, significantly improving profitability in the North American region, mainly due to the leverage of fulfillment operations, despite the continuous acceleration of delivery speeds." In the fourth quarter, total revenue in North America grew by 10% to $127.1 billion, while international revenue grew by 17% to $50.7 billion. Operating profit for the North American business unit was $11.5 billion, and for the international business unit was $1.0 billion. During the busy holiday season, Amazon.com, Inc.'s advertising business remained a bright spot. Advertising revenue for Amazon.com, Inc. grew by 23% to $21.3 billion, slightly higher than expected. Investors closely watch the growth rate of Amazon.com, Inc.'s advertising business, as it helps improve the profitability of this online retail company. Jassy stated that the company has added AI options to Prime Video to allow marketers to create ads with reduced manual intervention. In order to streamline operations and improve efficiency at Amazon.com, Inc., Jassy laid off 16,000 company employees last month. This round of layoffs brought Amazon.com, Inc.'s total number of employees to 300,000. Prior to the announcement of the latest round of layoffs, as of December 31, the number of full-time and part-time employees at Amazon.com, Inc. increased by 1% year-on-year to approximately 1.58 million. Tech giants aggressive in capital expenditure; concerns over Amazon.com, Inc.'s spending on AI Amazon.com, Inc. stated that as the company actively invests in data centers and other infrastructure to meet the increasing demand for artificial intelligence, capital expenditures are expected to continue to rise this year. According to FactSet data, the company is expected to have capital expenditures this year amounting to $200 billion, exceeding analysts' previous expectations of $146.6 billion. Amazon.com, Inc. is projected to have capital expenditures of around $131 billion in 2025. Jassy stated in a statement, "Given the strong demand for our existing products and services in the market, as well as pioneering opportunities such as artificial intelligence, chips, Siasun Robot&Automation, and low Earth orbit satellites, we expect Amazon.com, Inc. to invest approximately $200 billion in capital expenditures in 2026 and look forward to strong long-term return on investment." During an investor call, Jassy stated that spending will mainly go to AWS, as the growth rate of non-artificial intelligence workloads on AWS "exceeded our expectations." In October last year, Amazon.com, Inc. invested $11 billion in using a data center called Project Rainier, which is dedicated to running workload from the company Anthropic. Investors are concerned that the company's huge investments in artificial intelligence will squeeze profits and may not yield returns. At the time of writing, Amazon.com, Inc. shares fell more than 11% in after-hours trading, with the stock previously closing at $222.69 in New York. As of Thursday's market close, Amazon.com, Inc. shares have already declined by 3.5% year-to-date. Asit Sharma, senior investment analyst at Motley Fool, stated that Amazon.com, Inc.'s projected expenditure in 2026 will exceed its operating cash flow, which is difficult to eliminate investor concerns about the risks of overspending on artificial intelligence infrastructure by Amazon.com, Inc. and other large tech companies. Looking ahead, Amazon.com, Inc. expects first quarter revenue to be between $173.5 billion to $178.5 billion (with a median of $176.5 billion), higher than the market's general expectation of $175.5 billion. Amazon.com, Inc. also expects first quarter operating profit to be between $16.5 billion to $21.5 billion (with a median of $19 billion), lower than the market's general expectation of $22 billion. DA Davidson & Co. analyst, Gil Luria, stated, "This negative reaction is due to the growth rate of capital expenditures exceeding the growth rate of AWS revenue. Companies like Amazon.com, Inc. are caught in a continuous cycle of construction, which may not benefit anyone." Tech companies have ambitious artificial intelligence investment plans, promising to invest billions of dollars. Amazon.com, Inc.'s spending plan is currently the most aggressive among large tech companies like Meta, Alphabet Inc. Class C, and Microsoft Corporation, who collectively are expected to spend around $630 billion on artificial intelligence and related projects this year. Alphabet Inc. Class C's parent company Alphabet stated on Wednesday that it expects spending in 2026 to be between $175 billion and $185 billion, while Meta (META.US) stated that its capital expenditures could double from last year to $115 billion to $135 billion. Microsoft Corporation, which previously announced its earnings, also saw a significant drop in stock price due to spending exceeding expectations, as people are becoming increasingly concerned that demand for artificial intelligence services may not be enough to support such massive spending. In contrast, Alphabet Inc. Class C's capital expenditure forecast for this year was well received by investors on Wednesday, as the company's cloud revenue saw remarkable growth, and Meta's spending plan also gained recognition. Dave Wagner, portfolio manager at Aptus Capital Advisors, commented on Amazon.com, Inc.'s performance, stating "We're looking for sustained strong profit growth, but that hasn't happened. The market doesn't like the continuous influx of capital expenditure to achieve this kind of growth rate."