Amazon Chief Executive Andy Jassy said AI represents "the biggest technology shift and opportunity in business since the internet" But capacity constraints could make AI growth "lumpy," he told analysts Thursday. On Friday, Amazon stock slipped after the tech giant reported a weaker-than-expected first quarter outlook.
Amazon reported fourth quarter earnings and sales ahead of expectations. But investors focused on the company's outlook and AI commentary. That included Amazon's plan to spend about $100 billion on capital expenditures this year. Jassy told investors that the "vast majority" of spending is on AI for its Amazon Web Services cloud business.
The Amazon leader added that the company would not spend unless it saw "significant signals of demand." But investors are growing antsy about big AI costs, particularly after Chinese startup DeepSeek launched a high-performing large language model for what it said was a significantly lower cost than industry leaders such as OpenAI and Amazon partner Anthropic.
Adding to that concern, Q4 sales growth for the Amazon Web Services cloud business came in narrowly below expectations.
"AWS sales showed no acceleration — echoing results of Microsoft and Google clouds," Jefferies analyst Brent Thill wrote to clients Friday. "Capacity constraints persist, and AI rollout is still early, with better prospects in second-half 2025."
On the stock market today, Amazon stock slipped more than 4% to close at 229.15. Shares fell below a 233 flat base buy point, as identified by MarketSurge.
Amazon Sees Cloud Capacity Constraints
Amazon did not provide formal guidance for capital expenditures. Jassy said the $26.3 billion Amazon spent in Q4 is "reasonably representative" of the quarterly rate it will spend this year, pointing to spending of more than $100 billion in 2025.
One challenge is building enough data centers while procuring high-performing chips and electricity to meet demand, Jassy said.
"It is hard to complain when you have a multibillion-dollar annualized revenue run rate business in AI, like we do, and it's growing triple-digit percentage year over year," he said. "However, it is true that we could be growing faster, if not for some of the constraints on capacity."
Microsoft and Google parent Alphabet reported similar challenges for their cloud business during their recent earnings calls.
Those constraints are contributing to "lumpy" growth, Jassy said. But Jassy pushed back on concerns that DeepSeek will lead to less cloud demand overall.
"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," Jassy said. "We have never seen that to be the case."
Inference refers to the process of running data through AI models, as opposed to training the large language models. Amazon began offering enterprises access to DeepSeek through AWS last week.
Amazon Stock: 'Strong AI Positioning'
Analysts, meanwhile, are near unanimous in their bullishness on Amazon and are preaching patience with the big spending plans, despite the DeepSeek concerns.
RBC Capital Markets analyst Brad Erickson reiterated an outperform rating and upped his Amazon stock price target to 265 from 255, following the report.
"While the name is crowded (widely followed by investors) and the AI 'spend money to make money' debate will undoubtedly continue, the combo of AWS's high margin growth and further network cost efficiencies have the company poised to continue growing earnings at a level supportive of this valuation, particularly given its strong AI positioning with potential for easing capacity constraints later this year," Erickson wrote in a client note.
Meanwhile, William Blair analysts Dylan Carden and Arjun Bhatia reiterated an outperform call for Amazon. The analysts said Amazon's capex spending is positive in the long-term, with capacity constraints likely to ease later this year.
"Further, lower cost of inferencing, which is implied by DeepSeek, is very likely to proliferate AI applications, which is once again a positive for AWS," Carden and Bhatia wrote. "And we believe Amazon's full stack AI offering positions the company well to be a primary partner for businesses looking to deploy AI."
