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Amazon Reports Strong Q4 Growth, Plans Massive Capital Spending Increase
Amazon’s fourth-quarter sales jumped 14% year-over-year, bolstered by robust holiday spending and impressive performance from its cloud computing division. The e-commerce giant reported revenue of $213.4 billion for the quarter ending December 31, compared to $187.8 billion in the same period last year.
Despite the strong sales figures, Amazon’s shares tumbled 11% in after-hours trading on Thursday, as investors reacted to the company’s announcement of a dramatic increase in capital expenditure. The Seattle-based tech firm plans to boost spending by nearly 60% to $200 billion this year, up from $128 billion in 2023, significantly exceeding Wall Street’s expectations of around $147 billion.
The ambitious spending plan targets investments in artificial intelligence, robotics, semiconductors, and satellite technology. During an earnings call, CEO Andy Jassy defended the substantial investment, emphasizing the company’s ability to monetize new AI capabilities quickly.
“We are continuing to see as fast as we install this AI capacity, we are monetizing it,” Jassy told investors. “It’s just a very unusual opportunity. I passionately believe that every customer experience that we know of today is going to be reinvented.”
The earnings report comes amid significant workforce restructuring at Amazon. The company is cutting approximately 16,000 corporate positions in its second round of mass layoffs in three months. Amazon has stated that these reductions are primarily aimed at eliminating organizational layers to increase operational speed, rather than being directly driven by AI adoption.
Additionally, Amazon announced the closure of almost all of its Amazon Go and Amazon Fresh stores, resulting in roughly 5,000 retail worker layoffs across California, Maryland, and Washington. Combined with the 14,000 job cuts from October, Amazon has eliminated over 30,000 positions since Jassy began implementing organizational changes.
A bright spot in Amazon’s report was the performance of Amazon Web Services (AWS), which registered 24% growth in the fourth quarter—its fastest expansion in 13 quarters. This acceleration follows growth of 20% in the third quarter and 17.5% in the second quarter. However, AWS still trails behind Google Cloud, which reported a 48% revenue increase to nearly $18 billion, according to parent company Alphabet’s recent earnings report.
The tech industry’s AI investment race continues to intensify. Alphabet recently announced plans to spend between $175 billion and $185 billion this year, following $91 billion in AI-focused capital expenditures last year. Meta, Apple, and other tech giants are similarly expected to ramp up AI investments throughout 2024.
Beyond AI, Amazon continues to enhance its fulfillment network through robotics and warehousing efficiencies. The company is expanding its ultra-fast delivery service, Amazon Now, which offers delivery in 30 minutes or less. Currently available in various cities across India, Mexico, and the United Arab Emirates, the service is being tested in select communities in the United States and United Kingdom.
Amazon is also extending its same-day grocery delivery to more than 2,300 cities and towns across the U.S., with Jassy noting strong customer response to grocery offerings. Some of the shuttered Amazon Go and Fresh locations will be converted into Whole Foods Market stores, focusing the company’s grocery strategy on delivery and its upscale organic chain.
For the fourth quarter, Amazon reported net income of $21.2 billion, or $1.95 per share, slightly below analysts’ expectations of $1.97 per share. Product sales during the holiday period rose 9.4%, while AWS revenue reached $35.6 billion, exceeding analyst projections of $34.9 billion.
Looking ahead, Amazon forecasts first-quarter 2024 sales between $173.5 billion and $178.5 billion, in line with analysts’ projections of $175.6 billion.
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6 Comments
The e-commerce giant’s ability to quickly monetize new AI capabilities is intriguing. However, the significant increase in capital expenditure raises questions about the long-term payoff and whether it will put pressure on Amazon’s margins in the short term.
Amazon’s bold move to invest heavily in emerging technologies like AI and robotics signals their ambition to stay at the forefront of innovation. But investors will be closely watching the financial impact and payoff of these initiatives.
Interesting to see Amazon investing heavily in AI, robotics, and other cutting-edge tech. This could give them a competitive edge but also raises questions about their capital spending strategy and impact on profitability.
Amazon’s strong holiday sales are a positive sign, but the surge in capital spending has investors concerned about the company’s near-term financial outlook. It will be important to watch how these investments translate into future growth and returns.
The e-commerce giant’s focus on AI, robotics, and satellite technology suggests they are positioning themselves for the future. However, the market will need to see a clear path to monetizing these investments and maintaining profitability.
It’s encouraging to see Amazon’s cloud computing division performing well, but the substantial increase in capital spending is a concern. Investors will be looking for clear evidence that these investments are driving long-term value creation.