Amazon (AMZN) shares took a hit on Friday, falling more than 3% in pre-market trading after the company provided a weaker-than-expected sales forecast for the first quarter of 2025.
Despite beating analysts’ expectations for both earnings and revenue in the fourth quarter, Amazon’s guidance for Q1 revenue, projected between $151 billion and $155 billion, fell short of Wall Street’s consensus estimate of $158 billion.
In a statement, Amazon attributed part of this outlook to unfavorable foreign exchange rates, which are expected to negatively impact revenue by approximately $2.1 billion. The company also noted that the leap year in 2024 had boosted net sales by $1.5 billion, an advantage not present this year.
Cloud Segment Under Pressure
Amazon Web Services (AWS) reported Q4 revenue of $28.7 billion, narrowly missing expectations of $28.8 billion. The cloud market has faced challenges, with competitors Microsoft (MSFT) and Google (GOOGL) also underperforming due to capacity issues in meeting the rising demand for AI services.
Both rivals cited limitations in infrastructure as a reason for the cloud sales shortfall. Microsoft posted $40 billion in revenue, falling short of the expected $41.1 billion, while Google’s $11.9 billion in sales missed the $12.1 billion forecast.
Massive AI Investments Ahead
During the earnings call, CEO Andy Jassy revealed plans for a significant increase in capital expenditures, projected to reach $105 billion in 2025, up from $75 billion in 2024. The bulk of this spending will go toward AI and data center development to enhance Amazon’s cloud capabilities.
The company’s aggressive investment strategy underscores its commitment to staying competitive in the rapidly evolving AI landscape. This move follows the rise of DeepSeek, a China-based AI startup whose new models have rattled Wall Street by offering AI services on par with those of well-established tech giants.
Q4 Earnings Performance
For the fourth quarter, Amazon posted earnings per share (EPS) of $1.86 on revenue of $187.7 billion, surpassing analyst expectations of $1.50 EPS on $187.3 billion in revenue. This marked a significant improvement compared to last year’s Q4 EPS of $1.00 and revenue of $169.9 billion.
Looking Forward
Despite its current challenges, Amazon remains focused on innovation. By making DeepSeek’s AI model available on its platform, Amazon aims to keep pace with rising demand for AI-driven solutions while continuing to lead the global cloud market.
However, concerns over its Q1 guidance signal potential hurdles ahead as the company navigates currency headwinds and increasing competition. Investors will be closely watching how these factors impact Amazon’s future growth trajectory.
Source: yahoo!finance
