Amazon disappoints investors with weak outlook despite upbeat earnings

Amazon reported fourth-quarter earnings that beat analysts’ estimates but provided weaker-than-expected guidance due to potential foreign exchange impact and rising AI spending.

The e-commerce giant’s shares fell more than 4% in extended trading following its earnings report. As of market close on 6 February, the stock had risen 9% this year, following a 44% rally in 2024. 

Amazon’s soft guidance echos Alphabet, Microsoft, and Meta, suggesting the frenzy AI industry may face a slowdown. US tech giants face growth hurdles due to capacity constraints as surging demands require continued heavy investment in data centre.

Meanwhile, the Chinese startup DeepSeek recently developed its AI mode R1 on a friction cost of these hyperscalers, raising concerns about a valuation hype among US top tech firms. 

Disappointing guidance

Amazon expects revenue of $151.0 billion (€145.2 billion) and $155.5bn (€149.5bn), well below the estimated $158.5bn (€152.4bn). In the statement, it cited the guidance “anticipates an unusually large, unfavourable impact of approximately $2.1bn (€2.0bn) from foreign exchange rates”.

It forecasts operating income to be between $14bn (€13.5bn) and $18bn (€17.3bn), while analysts expected an average of $18.2bn (€17.5bn). 

The US dollar index surged to the highest since November 2022 in January, fuelled by Donald Trump’s presidency and the Federal Reserve’s hawkish shift. Amazon’s online retail sales may have been negatively impacted when converting overseas income into the dollar on books. 

Additionally, Amazon has been investing heavily in data centre expansion, with capital expenditure reaching $27.8bn (€26.72bn) in the December quarter – an increase of approximately 90% from the same period in 2023. 

Fourth quarter driven by AI and the holiday season

Amazon reported revenue of $187.8bn (€180.53bn), up 10% from the previous year, surpassing the estimated $187.3bn (€180.05bn). Excluding the unfavourable impact of foreign exchange, its revenue rose 11% year on year.

The company’s profit surged following extensive cost-cutting measures, primarily through staff reductions over the past two years, with net income increasing by 189% year on year to $20bn (€19.23bn).

Amazon Web Services (AWS), the company’s key segment, maintained an annual growth rate of 19% for the third consecutive quarter, in line with analysts’ expectations.

AWS seen as key innovation

CEO Andy Jassy highlighted AWS innovation as a key focus, including Amazon’s in-house AI chip, Trainium2, and its foundation models under Amazon Nova. AWS remains the world’s largest cloud computing business, followed by Microsoft Azure and Google Cloud. However, its two main rivals grew at a much faster pace of approximately 30% during the same quarter. 

The company’s two other major segments, Online Stores and Advertising Services, grew by 8% and 18% year on year, reaching $75.6bn (€72.67bn) and $17.3bn (€16.63bn), respectively. Online Stores remained Amazon’s largest revenue contributor, with the December quarter typically being the busiest due to the Christmas and New Year shopping period.

Meanwhile, Amazon’s digital advertising platform is the world’s third largest, behind Alphabet and Meta. Advertising Services is the company’s second-largest revenue contributor.

CEO Andy Jassy commented: “The holiday shopping season was the most successful yet for Amazon, and we appreciate the support of our customers, selling partners, and employees who helped make it so.”