Andy Jassy Just Delivered Fantastic News for Amazon Investors

Amazon (AMZN -1.65%) just reported a blowout quarter, but its stock fell after the results came out. Although the quarter itself was spectacular, management's guidance was underwhelming; the lower end of its revenue guidance would be Amazon's lowest quarterly year-over-year growth ever.

That's one pessimistic take on the report, and one that seems to be shared across the market. Amazon stock is down 3% since the report came out.

Are investors taking this a little too far? I would note that while it would be the slowest growth in Amazon's history, this isn't the first time management has guided so low. It guided for a 4% to 8% increase in revenue for the 2023 first quarter, exactly two years ago, and it came in ahead of even the high guidance with a 9% increase.

Amazon tends to beat its guidance, although there's no guarantee. But investors shouldn't let a potentiality, which may not even happen, overshadow some of the other excellent points in Amazon's story. Amazon is a leader in two huge growth industries, not to mention several other smaller ones, and CEO Andy Jassy just gave investors some amazing news.

Amazon's amazing quarter

For the 2024 fourth quarter, management was guiding for:

• Revenue growth of 7% to 11%, or sales to be $181.5 billion to $188.5 billion
• Operating income of $16 billion to $20 billion, up from $13.2 billion last year

Amazon reported:

• Revenue growth of 10%, sales of $187.8 billion
• Operating income of $21.2 billion

Net income increased from $10.6 billion, or $1 per share, to $20 billion, or $1.86 per share. Sales from Amazon Web Services (AWS), the cloud computing business, increased 19% year over year to $28.8 billion, slightly below Wall Street's expectations.

The market was focused on the first-quarter guidance of 5% to 9% growth in revenue, or $151 billion to $155.5 billion. The analyst consensus expectation was $158.5 billion. Jassy attributed the lower guidance to foreign exchange headwinds. Amazon is guiding for operating income of $14 billion to $18 billion. This target range spans from an 8.5% decline to a 17% increase from $15.3 billion last year.

Don't sweat the short term

It's reasonable for the market to be disappointed by the guidance, but it's so important at times like this for investors to play the long game. The stock didn't plunge, and it could recover quickly.

That brings me to Amazon's fantastic news. Jassy said he's put a lot of thought into how things will look a few years from now, and generative artificial intelligence (AI) is going to play a huge role in every application that's built. The truth is that there was so much positive news in his explanation of where Amazon is going with this that it's hard to distill it into one quote or idea, but Jassy started off by saying, "It's hard to overstate how optimistic we are about what lies ahead for AWS' customers and business."

He explained further: "While it may be hard for some to fathom a world where virtually every app has generative AI infused in it, with inference being a core building block just like compute, storage, and database, and most companies having their own agents that accomplish various tasks and interact with one another, this is the world we're thinking about all the time. And we continue to believe that this world will mostly be built on top of the cloud with the largest portion of it on AWS."

The market was buzzing about Amazon's capital spending over the next year and what it means for Amazon's opportunities. Jassy said that Amazon spent $26.3 billion in capital expenditures in the fourth quarter, mostly on AI for AWS. He said that's a reasonable expectation for a 2025 run rate, totaling more than $100 billion.

Amazon has everything to gain from investing in the AI business and a lot to lose if it doesn't. It's the top cloud computing company in the world, with 31% of the market, and Microsoft's Azure is a distant second with 20%. Keeping that lead requires innovation in a fast-changing field. Microsoft has said it would spend nearly $94 billion in developing AI this year, and Amazon needs to be right up there along with it.

AWS continues to lead, cementing deals with high-profile names like Intuit, PayPal, and Norwegian Cruise Line in the fourth quarter, among many more. Jassy has said that Amazon's AI capabilities are drawing greater interest in its cloud services, since that's where companies can get the most out of using AI in development.

Amazon offers a massive assortment of solutions and tools for all kinds of businesses and all sizes. It recently added DeepSeek as a cheaper option for its Bedrock customers, who have a choice of large language models (LLMs) to use in developing applications, and it also recently unveiled its own cheaper option called Nova, which it says matches performance but is around 75% cheaper than popular models.

This huge investment is going to show up in Amazon's earnings and likely is contributing to the lower expected growth in operating income in the first quarter. But Amazon is forward thinking, and this move could lead to huge benefits down the line.