Amazon Shares Drop as Cloud Growth Slows, Revenue Forecast Disappoints

Amazon.com shares fell sharply on Thursday after the company reported weaker-than-expected growth in its cloud computing unit and issued a disappointing revenue forecast for the first quarter.

Shares declined as much as 5% in extended trading following the fourth-quarter earnings report, wiping out approximately $90 billion in market value, before settling at a 4.2% drop.

Amazon Chief Financial Officer Brian Olsavsky stated that capital expenditures for 2025 are expected to remain at a similar level to the fourth quarter of 2024, when the company spent $26.3 billion. Amazon has ramped up spending, particularly to support artificial intelligence development.

The company's sales projection for the first quarter fell short of analyst expectations, even when accounting for a $2 billion negative impact from last year’s Leap Day. Amazon anticipates revenue between $151 billion and $155 billion, compared to the average analyst estimate of $158 billion.

Cloud Growth Misses Estimates

Amazon Web Services (AWS) reported a 19% increase in revenue to $28.79 billion, slightly below analyst expectations of $28.87 billion, according to LSEG data. Amazon joins competitors Microsoft and Google in reporting slowing cloud growth.

Amazon CEO Andy Jassy attributed some of the AWS slowdown to supply chain constraints. "We could be growing faster, if not for some of the constraints on capacity, and they come in the form of chips from our third-party partners coming a little bit slower than before," he told investors.

Investors have grown increasingly wary of Big Tech’s massive capital expenditures, particularly as companies ramp up investments in AI. “After very strong third-quarter numbers, this quarter the growth rates all missed. That's what the market doesn't want to hear,” said Daniel Morgan, senior portfolio manager at Synovus Trust. He also pointed to emerging competition in AI, including from China’s DeepSeek.

Amazon continues to invest heavily in AI software development. At its annual AWS conference in December, the company showcased new AI models aimed at attracting enterprise and consumer customers. Later this month, Amazon plans to launch its long-awaited Alexa generative AI voice service, after earlier delays due to quality and speed concerns, Reuters reported.

Microsoft and Google’s parent company, Alphabet, also reported slowing cloud growth in the fourth quarter, triggering declines in their stock prices. Along with Meta Platforms, they projected a combined capital expenditure of approximately $230 billion in 2025 to support AI infrastructure.

Retail and Advertising Businesses Offset Cloud Weakness

Amazon’s retail segment helped offset some of the cloud-related softness, with online sales rising 7% to $75.56 billion, surpassing estimates of $74.55 billion.

Advertising revenue, another key metric, increased 18% to $17.3 billion, slightly below the $17.4 billion analyst consensus.

For the first quarter of 2025, Amazon forecasted operating profit between $14 billion and $18 billion, missing the average analyst estimate of $18.35 billion.

The company reported total revenue of $187.8 billion for the fourth quarter, slightly above the analyst estimate of $187.3 billion. Net income nearly doubled to $20 billion from $10.6 billion a year earlier, with earnings per share of $1.86, well above the expected $1.49.

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