AI "burning money" strategy accelerates! Amazon's Q1 profit guidance falls short of expectations, with $27.8 billion in capital expenditures dragging down short-term profits

Zhitong Finance APP noted that Amazon (AMZN.US) is expected to report profits this quarter below analyst expectations, indicating that the company will continue to increase spending to support artificial intelligence services.

The company stated in a statement on Thursday that operating profit for the quarter ending in March will reach between $14 billion and $18 billion. The average analyst expectation is $18.2 billion. First-quarter sales are expected to reach up to $155.5 billion, while the average expectation is $158.6 billion.

The financial report shows that Amazon's revenue for the fourth quarter of 2024 was $187.79 billion, a year-on-year increase of 10.5%, exceeding market expectations by $560 million; earnings per share were $1.86, higher than the market expectation of $1.48; operating profit was $21.2 billion, while the average expectation was $18.8 billion.

CEO Andy Jassy has been cutting costs and focusing the company on three main business pillars: e-commerce, cloud computing, and advertising. He is determined to become a supermarket for artificial intelligence products and services, investing billions of dollars to build data centers and develop proprietary chips capable of handling AI tasks, competing with market leader NVIDIA.

DA Davidson & Co. analyst Gil Luria stated that although Amazon's overall performance this quarter is generally positive, "investors are currently concerned about the first-quarter performance guidance, which is below expectations, mainly due to significant currency drag and the impact of leap year overlap." Amazon warned that these forecasts are expected to have "an unusually large adverse impact of about $2.1 billion, or a 150 basis point foreign exchange impact."

Additionally, the extra day in the quarter of 2024 is expected to drive sales growth of about $1.5 billion.

For the quarter ending December 31, Amazon Web Services revenue grew by 19% to $28.8 billion, in line with analyst expectations. This marks the third consecutive quarter of 19% growth for the cloud computing division. The division's operating income was $10.6 billion, exceeding the average expectation of $10.1 billion.

Amazon's two major competitors in the cloud computing space both reported dismal quarterly results. Alphabet Inc.'s stock fell sharply on Tuesday after the company reported sales below expectations. Last week, Microsoft stated that its own cloud sales growth was impacted due to insufficient data centers to meet the demand for its AI products.

Amazon AWS sales and revenue continue to grow

Emarketer analyst Sky Canaves stated, "The growth rate of AWS has not accelerated as expected, but has remained at the same level as the third quarter, indicating that the company is facing challenges similar to those of competitors Google and Microsoft regarding capacity constraints." In 2024, Amazon's total expenditure on real estate and equipment is approximately $83 billion, most of which is allocated for the artificial intelligence competition. The company spent $27.8 billion on real estate and equipment in the fourth quarter, significantly higher than analysts' expectations of $22.3 billion.

Total operating expenses rose 6.2% to $166.6 billion—this marks Amazon's eighth consecutive quarter where revenue growth exceeds the growth in costs