Amazon.com (AMZN.US) reported its fourth-quarter financial results. Revenue for Q4 increased 14% year-over-year to $213.4 billion, surpassing the consensus estimate of $211.5 billion. GAAP earnings per share came in at $1.95, $0.02 below expectations. The company also announced plans to invest $200 billion in data centers and other equipment this year. Operating profit was reported at $25 billion, exceeding both the market consensus of $24.8 billion and the company's own guidance range of $21 billion to $26 billion. However, free cash flow over the past twelve months declined to $11.2 billion, primarily due to a $50.7 billion year-over-year increase in capital expenditures for property and equipment, net of proceeds from sales and incentives. This increase is understood to primarily reflect investments in artificial intelligence. Free cash flow was $38.2 billion in the same period last year.

Cloud business growth has become a focal point. Amazon Web Services (AWS), the company's cloud computing division, saw Q4 revenue grow 24% to $35.6 billion, its largest quarterly increase in over three years and above the expected $34.9 billion. However, this growth was overshadowed by the company's significant increase in capital expenditures. The AWS division's operating profit was $12.5 billion. Although AWS represents a smaller portion of Amazon's business, accounting for only 15% to 20% of total sales, its cloud platform contributes over 60% of the company's operating profit. Analysis indicates that AWS's profit margin slightly declined compared to the previous year, which is not a positive sign and is likely a factor contributing to the stock's decline in after-hours trading. In comparison, Amazon's competitors, Google Cloud (GOOGL.US) and Microsoft Azure (MSFT.US), reported sales growth of 48% and 39% respectively in the fourth quarter of last year. During the earnings call, CEO Andy Jassy adopted a strong tone, criticizing competitors and touting AWS's numerous new products. He stated, "Just a reminder, achieving 24% year-over-year growth on an annualized revenue base of $142 billion is fundamentally different from achieving a higher percentage growth on a significantly smaller base, as our competitors have."

While the cloud business is larger and more profitable, e-commerce remains Amazon's primary revenue source. The company is focused on accelerating delivery speeds to attract consumers to purchase more goods, including fresh groceries. Concurrently, Amazon has closed many of its physical retail experiments, including Amazon-branded grocery stores and cashier-less convenience stores. The company recorded a $610 million impairment charge, primarily related to its physical store business, including Amazon Go and Amazon Fresh supermarkets. Amazon stated it will gradually exit the physical store business, closing all Amazon Fresh and Amazon Go locations, with some stores being converted into Whole Foods Market outlets. The company has been undertaking a significant overhaul of its retail division, with the latest move involving expanding its Whole Foods stores and constructing a 225,000-square-foot megastore aimed at competing with companies like Walmart (WMT.US) and Costco (COST.US). Online store sales grew 10% to $83 billion, exceeding the analyst average estimate of $82.3 billion, indicating that the Seattle-based Amazon remains the preferred destination for online shoppers despite increasing competition from other retailers. An analyst noted that the core retail business maintained robust growth during the critical holiday season, with profitability in North America significantly improving, largely due to leverage in fulfillment operations, even as delivery speeds accelerated.

In Q4, total revenue in North America increased 10% to $127.1 billion, while international revenue grew 17% to $50.7 billion. The North American division's operating profit was $11.5 billion, and the international division's operating profit was $1 billion. Amazon's advertising business was a highlight during the busy holiday season. Advertising revenue grew 23% to $21.3 billion, slightly above expectations. Investors closely monitor the growth rate of Amazon's advertising business as it helps enhance the online retailer's profitability. CEO Jassy mentioned that the company has added AI options to Prime Video, allowing marketers to create advertisements with reduced manual intervention. To streamline the organization and improve operational efficiency, Jassy laid off 16,000 corporate employees last month. This brings the total number of recent job cuts at Amazon to 30,000. Prior to the latest round of layoffs, the number of full-time and part-time employees as of December 31 had increased by 1% year-over-year to approximately 1.58 million.

Amazon indicated that capital expenditure is expected to continue climbing this year as the company aggressively invests in data centers and other infrastructure to meet surging demand for AI. According to FactSet, the company anticipates capital expenditure to reach $200 billion this year, far exceeding the previous analyst expectation of $146.6 billion. Amazon's capital expenditure for 2025 was approximately $131 billion. Jassy stated, "Given the strong market demand for our existing products and services, as well as groundbreaking opportunities in AI, chips, robotics, and low Earth orbit satellites, we expect Amazon to invest approximately $200 billion in capital expenditure in 2026 and anticipate strong long-term returns on these investments." During the investor call, Jassy said the spending would "primarily" flow to AWS, as growth in non-AI workloads on AWS has been "exceeding our expectations." Last October, Amazon launched a $11 billion AI data center called Project Rainier, specifically dedicated to running workloads for Anthropic.

Investors are concerned that the company's massive investments in AI will squeeze profits and may not yield adequate returns. At the time of reporting, Amazon's stock fell over 11% in after-hours trading, after closing at $222.69 in New York. Year-to-date, the stock is down 3.5% as of Thursday's close. A senior investment analyst commented that Amazon's forecast for 2026 spending exceeding its operating cash flow does little to alleviate investor concerns about the risks of overspending on AI infrastructure by Amazon and other major tech companies. Looking ahead, Amazon expects first-quarter revenue to be between $173.5 billion and $178.5 billion (midpoint $176.5 billion), above the consensus estimate of $175.5 billion. The company also forecasts Q1 operating profit to be between $16.5 billion and $21.5 billion (midpoint $19 billion), below the consensus estimate of $22.2 billion. An analyst stated, "The negative reaction is due to the capital expenditure growth outpacing AWS revenue growth. Amazon and others are caught in an escalating building race, and this construction may not benefit all of them."

Tech companies have outlined ambitious AI investment plans, committing hundreds of billions of dollars. Amazon's spending plan is currently the most aggressive among major tech peers, including Meta, Google, and Microsoft, which are collectively projected to spend approximately $6.3 trillion on AI and related projects this year. Alphabet, Google's parent company, said on Wednesday it expects 2026 expenditure to be between $1.75 trillion and $1.85 trillion, while Meta (META.US) stated its capital expenditure could double from last year to between $1.15 trillion and $1.35 trillion. Microsoft, which reported earlier, also saw its stock drop significantly as its spending exceeded expectations, amid growing concerns that demand for AI services may not justify such massive expenditures. In contrast, Google's capital expenditure forecast for this year was better received by investors on Wednesday, thanks to the company's impressive cloud revenue growth, and Meta's spending plan also gained approval. Commenting on Amazon's results, a portfolio manager said, "We wanted to see sustained strong profit growth, but that hasn't materialized. The market dislikes the need for continuous, heavy capital expenditure to achieve such growth rates."