Amazon shares edged higher in early Thursday trading ahead of its fourth quarter earnings report, slated for after the closing bell, amid intense investor focus on the capital spending plans of the world's biggest tech companies.
Amazon (AMZN) , which alongside its world-leading online retail business runs the biggest cloud-service group on the planet, topping both Microsoft (MSFT) and Google parent Alphabet (GOOGL) that has largely outperformed its rivals in the $600 billion market.
Amazon Web Services is expected to generate around $29 billion in revenue for the Seattle group, or around 15% of its expected overall tally for the three months ended in December and its operating margin of around 38% makes it the most profitable group in Amazon's broad stable of retail, media and advertising businesses.
It's also established itself at the forefront of the AI-investment story, thanks in part to its embrace of open-source projects and its wide reach of corporate clients worldwide.
“Amazon earnings have long been become a bellwether for consumer spending and the overall economy, but AWS will be the focus for this earnings call," said Lee Sutar, principal analyst at research group Forrester.
"Not only because AWS often keeps its parent company in the black, but because the numbers will show if Amazon can convert the vast data gravity of its customers into opportunities for generative AI buildout," she added.
AI is lucrative but costly
Amazon has been cognizant of the surging costs tied to the expansion of AI workloads, and while it remains a key purchaser of Nvidia's (NVDA) AI-powering chips, it's also developing its own Trainium processors, which CEO Andy Jassy says will be "very compelling for customers on price-performance."
Development costs, however, for chips and processors as well as for the data centers in which they're housed, have come into stark focus for investors following the emergence of DeepSeek.
The China-based startup, founded less than two years ago, claims to have built, trained and deployed an AI chatbot that outperforms its larger rivals at a fraction of the cost.
Nvidia shares, in fact, shed nearly $600 billion following the release of its latest version late last month, notching the largest single-day stock-value decline on record.
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Still, the biggest data-center builders, which include Microsoft, Alphabet and Meta Platforms (META) , doubled-down on their planned capital expenditures for the coming year, insisting that the larger risk in the developing AI race is investing too little, not spending too much.
"Part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible," Google CEO Sundar Pichai told investors earlier this week.
"That's the opportunity space [and] it's as big as it comes, and that's why you're seeing us invest to meet that moment," he added.
Billions on the line in AI race
Google boosted its 2025 capital expenditure estimate to $75 billion, topping Wall Street forecasts by around $15 billion, while Meta has committed to spending around $65 billion. Microsoft, for its part, has signaled a capex tally of around $80 for its fiscal year ending in June.
Both Microsoft and Google, however, have seen modest slowdowns in cloud revenue growth, and while they both put that down to capacity constraints, investors are starting to lose patience with the pace of capex growth, which has yet to be fully monetized.
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"We believe AI will generate significant revenue streams, yet how those revenues will be sliced up is the big question to track," said Paul Henderson, a senior portfolio strategist at BlackRock Investment Institute.
"One possible outcome: The big tech players now powering the AI buildout could reap most of the benefits," he added. "Yet last week’s developments show there is another path: cheap, efficient and commoditized AI models that could benefit AI’s end users instead of big tech."
Capital-spending plans in sharp focus
That view puts Amazon's 2025 capital-spending plans, which CEO Jassy says will likely exceed the $75 billion it was on pace to spend in 2024, in sharp focus in the group's post-earnings call.
"I think we've proven over time that we can drive enough operating income and free cash flow to make this very successful return on invested capital business," Jassy told investors following the group's third-quarter report in October.
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"And we expect the same thing will happen here with generative AI. It is a really unusually large, maybe once-in-a-lifetime type of opportunity," he added. "And I think our customers, the business, and our shareholders will feel good about this long term that we're aggressively pursuing it."
Amazon shares were marked 0.85% higher in premarket trading to indicate an opening bell price of $238.15 each, a move that would extend the stock's six-month gain to around 47%.
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