Amazon.com Inc shares dropped after the company announced plans to spend US$200 billion this year on data centers, chips and other equipment, sparking concern that its colossal bet on artificial intelligence (AI) might not pay off in the long run.
The company reported spending about US$130 billion on property and equipment last year.
Analysts anticipated those expenses would reach about US$150 billion this year.
Photo: Reuters
CEO Andy Jassy said the money “predominantly” would go toward the company’s Amazon Web Services (AWS) cloud unit, and most of that spending would be for AI workloads.
“I think this is an extraordinarily unusual opportunity to forever change the size of AWS and Amazon as a whole,” Jassy said on Thursday on a conference call.
“We see this as an unusual opportunity and we’re going to invest aggressively to be the leader,” he added.
The spending would weigh on profits, with Amazon forecasting operating income of US$16.5 billion to US$21.5 billion this quarter. Analysts, on average, estimate US$22.2 billion.
Amazon shares fell about 10 percent in extended trading after closing at US$222.69 in New York. Its stock had declined 3.5 percent this year through Thursday’s close.
AWS revenue rose 24 percent to US$35.6 billion — the biggest quarterly growth in more than three years, the company said in a statement.
Operating income for the cloud unit was US$12.5 billion.
“The negative reaction is a result of bigger increases to capex than to AWS revenue,” said Gil Luria, an analyst at DA Davidson & Co. “Much like Microsoft, investors are concerned that investments are growing faster than returns, and that Amazon, Google and Microsoft are locked in an escalating buildout that may not work out for all of them.”
Some of Amazon’s capital expenditures would go toward its effort to compete with SpaceX’s Starlink Internet service by placing satellites in low-Earth orbit; increasing the use of robotics in its logistics operation to help speed e-commerce deliveries; and opening new Whole Foods grocery stores.
However, the bulk of the US$200 billion would finance Amazon’s effort to meet demand for computing power from AI customers, Jassy said.
AWS had an order backlog, meaning sales it expects to recoup in the future, of US$244 billion in the fourth quarter, an increase of 40 percent from a year earlier and up 22 percent from the previous period, he said.
Total revenue increased 14 percent to US$213.4 billion in the fourth quarter.
Operating profit was US$25 billion in the period, which ended on Dec. 31.
Still, Amazon’s e-commerce operation generates most of the company’s revenue. Online store sales jumped 10 percent to US$83 billion, topping analysts’ average estimate of US$82.3 billion, indicating the Seattle-based company continued to be a destination for Internet shoppers, despite stepped-up competition from other retailers.
“The core retail business maintained solid growth through the all-important holiday quarter, with a notable improvement in North America profitability driven by operational leverage in fulfillment despite the expansion of ever-faster delivery,” Sky Canaves, an analyst at Emarketer, said in a statement.
Advertising revenue increased 23 percent to US$21.3 billion in the busy holiday quarter, just ahead of estimates. Investors carefully watch the growth rate of Amazon’s advertising business since it helps make the online retail operation more profitable.
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