Breakfast News: Amazon Posts A Mixed Bag
Amazon's stock fell 5% in pre-market trading despite strong Q4 earnings, as Q1 guidance disappointed investors. CEO Andy Jassy cited capacity constraints affecting growth. Pinterest reported a record $1 billion revenue quarter, with positive user growth and partnerships. Big Tech is set to invest over $320 billion in AI infrastructure in 2025. The upcoming jobs report will provide insights into the labor market's health, with expectations of a slowdown in hiring. Investors are advised to monitor the unemployment rate closely for potential Federal Reserve policy changes.
Breakfast News: Amazon Posts A Mixed Bag
February 7, 2025
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1. Amazon Stutters on Future Projections
Amazon (AMZN 1.13%) fell by as much as 5% in pre-market trading despite posting strong fourth-quarter earnings. Guidance for Q1 came in slightly below expectations, causing some investors to get spooked.
- "It is true we could be growing faster were it not for some of the constraints on capacity": Despite forecasting to invest $100 billion in capital expenditure (capex) this year, with the vast majority focused on AI infrastructure, CEO Andy Jassy said the business was being hampered by hardware shipment delays and not enough electricity.
- "The most successful holiday shopping season yet": Jassy flagged the 10% growth in revenue, which came in ahead of expectations. The Amazon Web Services (AWS) division accounted for half of the company's operating income for the period, despite making up just 15% of total sales.
2. Pinterest Results Provide Positive Surprise
Pinterest (PINS 0.87%) hit a first $1 billion revenue quarter, with record monthly users and more positive news helping the Rule Breakers recommendation to rocket 22% higher ahead of the market opening.
- "2024 was a banner year for Pinterest, capped off by a milestone Q4": Despite earnings per share missing expectations, the company showed progress with regards to partnerships with Amazon and Alphabet (GOOG 0.01%) on displaying ads and driving traffic. Management guided for a 13-15% year-over-year revenue growth for Q1.
- Spotlight on international market growth: The next progression step is aiming to monetize more of this client activity. For example, there are three times as many "rest of the world" users as there are in the U.S. and Canada, and the average person in this area accounts for just 2% as much revenue as the typical American Pinterest user today.
3. Big Tech Doesn't Curb its AI Enthusiasm
The four biggest spenders on data centers powering AI are expected to exceed $320 billion in investment over the course of 2025, in a clear message being sent from the sector.
- Mag 7 capex up 40% in 2024 compared with 3.5% among the remaining S&P 500: Microsoft (MSFT 0.61%), Meta (META 1.01%), Alphabet, and Amazon spent $246 billion in capex last year, the majority focused on AI infrastructure. This was already a jump from 2023's $151 billion. Management at the hyperscalers have reiterated the importance of the spend in recent earnings calls, saying the AI opportunity is as big as it gets.
- Looking beyond short-term volatility: The scale of the spending ambitions has caused some concern, following the release of the cheap DeepSeek AI model. However, Big Tech CEOs emphasize they see it as a long-term positive, not a negative, for the industry.
4. Next Up: Payrolls to Offer Policy Clues
The release of January's jobs report today will provide investors with key information regarding the health of the labor market. Jobs, not inflation, could be the best place to find clues for the future policy actions from the Federal Reserve.
- "The key macro data for the foreseeable future": Citi (C 3.61%) analyst Stuart Kaiser believes the unemployment rate should be watched carefully, due to hold steady at 4.1%. The headline payrolls number is estimated to come in at 170,000, a slowdown from the bumper 256,000 print from December.
- Hiring rate near the lowest level since 2013: If the labor market started to deteriorate with the unemployment rate spiking, it could trigger another rate cut to boost demand in the economy. After all, Fed Chair Powell cited a 'low hire, low fire' job situation as a concern at the latest central bank meeting.
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