Amazon shares moved lower in early Friday trading after the tech and retail giant reported a mixed set of fourth quarter earnings and a massive increase in capital spending plans, that triggered a host of price target changes from analysts on Wall Street.
Amazon (AMZN) is spending billions on data centers, and the chips that power them, as part of a broader bet on the AI technologies that drive growth not only for its flagship Amazon Web Services cloud division but also for its online-retail, fulfillment and advertising businesses.
The group said it spend around $26.3 billion over the the three months ended in December, adding that it expects a similar pace over the course of 2025, suggesting a full-year capital spending total of more than $100 billion.
The higher-than-expected tally, however, was set against muted growth rates for Amazon Web Services, its most-profitable business, as well as a near-term sales forecast that missed Wall Street forecasts.
AWS revenue rose 19% from the year-earlier period to $28.79 billion, narrowly missing Wall Street's 19.4% growth estimate, thanks in part to capacity constraints that left it unable to meet overwhelming AI demand.
"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," Chief Executive Andy Jassy told investors on a conference call late Thursday. "However, it is true that we could be growing faster, if not for some of the constraints on capacity."
Massive AI spending plans
Jassy was also nonplussed with respect to the capital spending increase, which topped Wall Street estimates by more than $20 billion. It comes amid notable increases from hyperscaling rivals like Microsoft (MSFT) , Meta Platforms (META) and Google parent Alphabet (GOOGL) , which are set to spend a collective $230 billion this year.
"It's the way that AWS business works," Jassy said. "The faster we grow, the more capex we end up spending because we have to procure data center and hardware and chips and networking gear ahead of when we're able to monetize it."
"We don't procure it unless we see significant signals of demand," he added. "And so, when AWS is expanding its capex, particularly in what we think is one of these once-in-a-lifetime type of business opportunities like AI represents, I think it's actually quite a good sign, medium to long term, for the AWS business."
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Amazon's broader businesses were solid and improving as well, with advertising revenues rising 18% to $17.3 billion and retail sales rising 7% to $75.56 billion.
Overall revenue rose 11% to a record $187.8 billion, just ahead of Wall Street forecasts, while net income nearly doubled to just over $20 billion.
Looking into the current quarter, however, Amazon said it sees top-line growth of around 7%, with revenue ranging $151 billion to $155 billion, with the strong dollar and one less working day compared with the year- earlier quarter creating a collective headwind of $3.6 billion.
Near-term headwinds but longer-term potential
"While investors were looking for better first-quarter guidance, we remain encouraged by Amazon's commentary around return on capital expenditure over the medium to long term as the company continues to position itself to capture traditional cloud migration and AI budgets," said Citizens JMP analyst Nicholas Jones.
"While we expect [foreign-exchange] headwinds are likely to persist through the third quarter at least, we continue to see Amazon's business segments as well positioned to continue gaining share of their respective categories, while delivering improving margins," added Jones, who affirmed his $285 price target and outperform rating.
D.A. Davidson Gil Luria, who lifted his price target on Amazon stock by $45 to $280 a share, said last night's earnings report showed "improving retail profitability and sustained AWS growth in spite of strong headwinds due to foreign exchange rates."
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"Management's commentary around AWS suggests that they're continuing to see growth in both their AI and non-AI services, with cloud migrations accelerating as customers eye new AI initiatives," he added.
"Furthermore, it was noted that while it wasn't a huge impact, once AWS becomes less capacity constrained, they expect they'll be able to accelerate growth even more, which they expect to occur in the back half of the year," Luria said.
'Bull case intact' for AMZN: Cantor Fitzgerald
"We think the bull case on Amazon for 2025 is intact," said Cantor Fitzgerald analyst Deepak Mathivanan, who carries an overweight rating and a $270 price target on the stock.
"Looking past the near-term numbers, Amazon’s fundamentals are strong in both retail and AWS segments," he added. "We continue to see plenty of runway for margin expansion in the retail segment and a path for acceleration in AWS growth."
Pivotal Research analyst Jeffrey Wlodarczak, who reiterated his buy rating and $260 price target following the update, echoed that underlying strength.
"Amazon has a deep moat around their core businesses, driven by their unmatched scale, and appears to have numerous healthy organic revenue growth opportunities," he said.
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"This is all enhanced by ... the potential to materially boost operating margins driven by scale, leveraging robotics/AI and benefits from an increasing % of revenue from high margin cloud computing/advertising combined with what appears to be an attractive valuation," Wlodarczak added.
"We had a successful year across almost any dimension you pick," Jassy told investors last night. "We're far from done and look forward to delivering for customers in 2025."
Amazon shares were last marked 2.7% lower in premarket trading to indicate an opening bell price of $232.35. Such a move would leave the stock with a six-month gain of around 43%.
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