Amazon earnings recap: Stock falls as guidance falls short, CFO indicates capex of more than $100 billion in 2025

Amazon's stock is trading 4.4% lower after-hours as the call ends.

One analyst asks about UPS's decision to deliver fewer packages for Amazon.

Jassy replied that UPS found some of Amazon's deliveries too low-profitability — similar to the reason UPS gave for downsizing its business with Amazon.

Amazon built up its own logistics infrastructure during the pandemic, which meant it could carry more packages and saved money, Jassy said. That means that Amazon will be able to pick up the slack itself, he added.

"We were impressed with what DeepSeek has done," Jassy said, including "some of the training techniques, primarily, and flipping the sequencing of reinforcement training, reinforcement learning being earlier without the human in the loop."

He adds that there will be room for multiple different models, each good for a different purpose and that Amazon wants to provide as many options for customers as possible.

Despite worries in recent weeks about cheaper models like DeepSeek, Jassy said that the cost of inference will fall — and that will be a good thing for tech companies.

"Sometimes, people make the assumptions that if you're able to decrease the cost of any type of technology component, in this case, we're really talking about inference, that somehow it's going to lead to less total spend in technology," he said.

"We have never seen that to be the case," Jassy added.

The $26.3 billion that Amazon spent on capital expenditures in the fourth quarter — a run rate that will be "reasonably representative of our 2025 capital investment rate," CFO Olsavsky said. Doing the math, that would be about $105 billion in spending for 2025.

The "vast majority" of capex is on AI and AWS, execs said.

Like 2024, most of that spending will "support demand for our AI services, as well as tech infrastructure to support our North America and international segments," he adds.

Amazon's shares are trading more than 5% down after the remarks.

Jassy references the latest Trainium chips, saying that "most AI computing has been driven by Nvidia chips, and we obviously have a deep partnership with Nvidia and will for as long as we can see into the future."

"However, there aren't that many generative AI applications of large scale yet, and when you get there, like we have with apps like Alexa and Rufus, cost can get steep quickly," he said.

CEO Andy Jassy, CFO Brian Olsavsky, and head of investor relations Dave Fildes are on the call.

Growth at AWS "did not accelerate as anticipated and instead matched Q3 levels, indicating that the company is challenged by the same types of capacity constraints facing rivals Google and Microsoft," Sky Canaves, principal analyst at EMARKETER, a sister company of Business Insider, said.

A brighter spot during the quarter was Amazon's holiday sales performance, which Canaves called "relatively strong for US retail."

"We estimate that Amazon accounted for nearly half of US e-commerce growth during the holidays, and will gain share of overall online sales over the course of 2025, especially as low-cost rivals like Temu and Shein will be more heavily impacted by recent tariff developments," Canaves said.

Analysts will be listening for any guidance about Amazon's planned spending on AI this year.

It seemed to have an initial response in its earnings press release, saying benefits from AWS innovation are "often realized by customers (and the business) several months down the road, but these are substantial enablers in this emerging technology environment and we're excited to see what customers build."

Other big tech names have indicated that they are willing to spend on AI so far this earnings season.

Google parent company Alphabet said this week that its capital expenditures will reach $75 billion for 2025. Meta is planning to spend $60 billion to $65 billion for the year, it said last month. And Microsoft expects that spending, mostly on AI data centers, will amount to $80 billion for the year.

Haul, Amazon's answer to low-price shopping sites like Temu and AliExpress, got a shoutout in the earnings press release as a "new shopping experience" launched during the fourth quarter.

Amazon launched Haul in November. Like Temu, its products ship to customers directly from China and cost less than $20. The model relies on a de minimis exemption that was the target of an executive order from President Donald Trump earlier this month.

4th quarter

• Net sales $187.79 billion, +10% y/y, estimate $187.32 billion

  • Online stores net sales $75.56 billion, +7.1% y/y, estimate $74.71 billion
  • Physical Stores net sales $5.58 billion, +8.3% y/y, estimate $5.4 billion
  • Third-Party Seller Services net sales $47.49 billion, +9% y/y, estimate $48.02 billion
  • Subscription Services net sales $11.51 billion, +9.7% y/y, estimate $11.58 billion
  • AWS net sales $28.79 billion, +19% y/y, estimate $28.82 billion
  • North America net sales $115.59 billion, +9.5% y/y, estimate $114.27 billion
  • International net sales $43.42 billion, +7.9% y/y, estimate $44.13 billion
• Third-party seller services net sales excluding F/X +9% vs. +19% y/y, estimate +10.2%
• Subscription services net sales excluding F/X +10% vs. +13% y/y, estimate +10.3%
• Amazon Web Services net sales excluding F/X +19% vs. +13% y/y, estimate +19%
• EPS $1.86 vs. $1.43 q/q, estimate $1.50

• Operating income $21.20 billion, +61% y/y, estimate $18.84 billion

  • Operating margin 11.3% vs. 7.8% y/y, estimate 10.1%
  • North America operating margin +8% vs. +6.1% y/y, estimate +6.48%
  • International operating margin 3% vs. -1% y/y, estimate 3.08%
• Fulfillment expense $27.96 billion, +7.2% y/y, estimate $28.45 billion
• Seller unit mix 62% vs. 61% y/y, estimate 60.2%

Source: Bloomberg

Consumer strength and rising demand for AI should put Amazon ahead of consensus expectations, Deutsche Bank said. The industry's growing embrace of Amazon's cloud service means that AWS could contribute to Amazon's expected operating income beat of $21 billion.

"These trends alone (accelerating AWS revenue and a measured stance to headcount growth) should support at least $1bn of OI upside relative to the Street in the 4Q, to say nothing of the upside that should flow through the global e-commerce business," the bank said.

Although Amazon may face stiffer headwinds from a strengthening dollar, operating income estimates should still rise higher after the earnings report.

Deutsche Bank has a $275 price target on Amazon, about 15% higher than current levels.

Amazon stands to gain from what looks to be an improving consumer backdrop, Mizuho said. Fourth-quarter ad-spend growth and price improvements across discretionary and staple products are displaying positive trajectories.

"With that in mind, we feel good about the ecommerce revenue growth in 4Q24 and more importantly, the expected margin leverage from inbound logistics," the note said.

The outperformance of AWS cloud service, retail margin expansions, and capital efficiencies add to Amazon's favorable risk/reward proposition, the analysts said.

Mizuho has an "Outperform" rating on Amazon stock and holds a price target of $285, 20% higher than current levels.

Wedbush Securities projects that the e-commerce giant will earn $20.7 billion in fourth-quarter operating income, outpacing initial 2024 expectations by more than 40%.

This "exceptional" year of profit growth will repeat in 2025, and Wedbush sees full-year operating income beating consensus by 5%. Investors are too conservative about the firm's margin potential, given needless concern about the rising AI and satellite costs, as well as Amazon's decision to not increase Fulfillment fees.

"We believe there is upside to expectations for 4Q results and 1Q guidance given the strength of the underlying retail environment, continued fulfillment optimization, improvements in international retail margin, and an ongoing mix shift to higher-margin AWS and advertising revenue," analysts wrote.

Wedbush maintains an "Outperform" rating on Amazon. It increased its price target to $280, implying an 18% gain from current levels.

Morgan Stanley equity analyst Brian Nowak is bullish on Amazon over its latest advances in warehouse robotics, making it an underappreciated AI winner in retail. For every 10% of units passing through robotic-enabled warehouses by 2030, Amazon could unlock up to $3 billion in annual recurring savings.

"Early signals are promising too, with Amazon's latest fulfillment center in Shreveport, LA (opened in September 2024 as the first fulfillment center bringing together the full fleet of its latest robotics innovations), delivering 25% lower 'cost-to-serve' (fulfillment cost) during peak periods," Nowak wrote.

Fulfillment costs make up nearly 20% of retail revenue, he added, making automation a serious long-term positive

Morgan Stanley holds an "Overweight" rating on Amazon and a $280 price target, indicating 18% upside from current levels.

Amazon should deliver a solid fourth-quarter report, as holiday-boosted retail growth will deliver an above-consensus operating profit of $19.7 billion. The firm's AWS cloud platform will likely meet expectations for 19% to 20% growth, BofA said, thanks to rising AI contributions.

Drivers to cloud demand include, "Amazon's growing partnership with Anthropic, new competitive AI offerings (including Nova models and lower infrastructure costs on Trainium), and ramping GPU supply (greater Nvidia chip supply as well as the launch of Nvidia's Blackwell chips & cloud products)."

But there are risks moving forward. The bank lowered its first-quarter revenue amid tariff and currency headwinds and cited that AWS margins may have peaked in 2024 amid favorable demand.

BofA maintains a "Buy" rating on Amazon and a price objective of $255, or 8% above the firm's current share price.

4th quarter

• Net sales estimate: $187.32 billion

  • Online stores net sales estimate: $74.71 billion
  • Physical Stores net sales estimate: $5.4 billion
  • Third-Party Seller Services net sales estimate: $48.02 billion
  • Subscription Services net sales estimate: $11.58 billion
  • AWS net sales estimate: $28.82 billion
  • North America net sales estimate: $114.27 billion
  • International net sales estimate: $44.13 billion
• Third-party seller services net sales excluding F/X estimate: +10.2%
• Subscription services net sales excluding F/X estimate: +10.3%
• Amazon Web Services net sales excluding F/X estimate: +19%
• EPS estimate: $1.50

• Operating income estimate: $18.84 billion

  • Operating margin estimate: 10.1%
  • North America operating margin estimate: +6.48%
  • International operating margin estimate: 3.08%
• Fulfillment expense estimate: $28.45 billion
• Seller unit mix estimate: 60.2%

1st quarter

• Net sales estimate: $158.64 billion
• Operating income estimate: $18.24 billion

(Source: Bloomberg data)