Amazon's Weak Guidance Takes the Shine Off Strong Earnings

Amazon delivered better-than-expected fourth-quarter earnings, but its weaker guidance sent investors scrambling. The stock slid over 4% in extended trading, even after a 9% year-to-date gain and a massive 44% rally in 2024. The e-commerce and cloud giant is facing headwinds, particularly from foreign exchange fluctuations and escalating AI investments.

Revenue for the quarter hit $187.8 billion, marking a 10% year-on-year increase, slightly edging past the expected $187.3 billion. 

Amazon Web Services (AWS), a key profit driver, maintained its 19% annual growth rate, but it's losing pace to rivals. Microsoft Azure and Google Cloud expanded at roughly 30% over the same period. The company has been pouring money into its cloud infrastructure, with capital expenditure surging to $27.8 billion in Q4—almost doubling year-on-year.

The rising US dollar added another layer of pressure, with Amazon warning of a $2.1 billion hit from currency fluctuations. The dollar index soared to levels unseen since November 2022, driven by the Federal Reserve’s hawkish stance and political uncertainty. 

What Does This Mean for Me?

Meanwhile, the broader AI industry faces questions about sustainability, with Chinese startup DeepSeekrolling out a competitive model at a fraction of the cost.

While Amazon’s online stores and ad business grew 8% and 18%, respectively, concerns about future profitability remain. The holiday season delivered record sales, but with tightening macro conditions and slowing cloud momentum, investors are wary of what’s next for the tech giant