Amazon shares drop as cloud growth, sales forecast lag

Amazon.com investors drove shares down sharply on Thursday (Feb 6) due to weakness in the retailer's cloud computing unit and lower-than-expected forecasts for first-quarter revenue and profit.

Amazon's shares fell as much as 5 per cent in extended trade after the fourth-quarter earnings report, erasing about US$90 billion worth of stock market value, and were last down about 4.2 per cent.

Amazon Chief Financial Officer Brian Olsavsky said he expected the capital expenditure run rate for this year to be roughly the same as last year's fourth quarter when the company spent US$26.3 billion. Amazon has boosted spending in particular to help develop artificial intelligence software.

The company's sales estimate for the first quarter failed to meet analysts’ expectations, even if a negative impact of US$2 billion from last year’s Leap Day is included. The company said it anticipates between US$151 billion and US$155 billion, compared with the average estimate of US$158 billion.

The cloud unit, Amazon Web Services, reported a 19 per cent rise in revenue to US$28.79 billion, falling short of estimates of US$28.87 billion, according to data compiled by LSEG. Amazon joins smaller cloud providers Microsoft and Google in reporting weak cloud numbers.

Chief Executive Officer Andy Jassy said the inconsistent flow of computer chips had held back some growth in AWS. "We could be growing faster, if not for some of the constraints on capacity, and they come in the form of chips from our third-party partners coming a little bit slower than before," he told investors on a conference call.     

The cloud weakness occurs as investors have grown increasingly impatient with Big Tech's multibillion-dollar capital spending and are hungry for returns from hefty investments in AI.

"After very strong third-quarter numbers, this quarter the growth rates all missed. That's what the market doesn't want to hear," said Daniel Morgan, senior portfolio manager at Synovus Trust. He said this is particularly true after the emergence of new competitors in artificial intelligence such as China's DeepSeek. 

Like its rivals, Amazon is investing heavily in artificial intelligence software development. At its annual AWS conference in December, it showed off new AI software models that it hopes will draw new business and consumer customers.

Later this month, it is set to release its long-awaited Alexa generative artificial intelligence voice service after delays over concerns about the quality and speed, Reuters reported earlier this week. 

Competitors Microsoft and Google parent Alphabet both posted slowing cloud growth in last year’s fourth quarter, sending shares lower. The companies, along with Meta Platforms, said costs to develop infrastructure for artificial intelligence software contributed to sharply higher anticipated capital expenditures for 2025, a total of around US$230 billion between them.

Amazon's retail business helped offset the cloud weakness, with the company reporting online sales growth of 7 per cent in the quarter to US$75.56 billion. That compared with estimates of US$74.55 billion. 

Amazon forecast operating profit of US$14 billion to US$18 billion for the first quarter of 2025, missing an average analyst estimate of US$18.35 billion.

The company reported revenue of US$187.8 billion in the fourth quarter, compared with the average analyst estimate of US$187.30 billion, according to data compiled by LSEG.

Advertising sales, a closely watched metric, rose 18 per cent to US$17.3 billion. That compares with the average estimate of US$17.4 billion.

Net income nearly doubled to US$20 billion from US$10.6 billion a year earlier. The Seattle retailer reported earnings of US$1.86 per share, compared with expectations of US$1.49 per share.