In a move that mirrors concerns raised by Microsoft, Amazon has warned investors that it may face capacity constraints in its cloud computing division, despite plans to invest approximately $100 billion in 2025. This investment is primarily focused on expanding data centers, developing proprietary chips, and acquiring other equipment necessary to provide artificial intelligence (AI) services.
CEO Andy Jassy, determined to establish Amazon as a leading AI provider, is making significant investments to maintain the company’s competitive edge in the cloud computing market. However, he cautioned that growth would be “lumpy” and suggested that Amazon could encounter capacity issues due to delays in obtaining hardware and ensuring sufficient electricity supply.
“It is true we could be growing faster were it not for some of the constraints on capacity,” Jassy acknowledged during a conference call following the release of the company’s fourth-quarter results.
Similar to Microsoft, which recently reported that its cloud sales growth was hampered by a lack of data centers to meet the demand for its AI products, Amazon is facing challenges in keeping pace with the rapidly increasing demand for AI services.
Jassy explained that the supply of chips, both from third-party vendors and Amazon’s own chip design unit, along with power capacity limitations, are hindering the company’s ability to bring new data centers online. He anticipates that these constraints will likely ease in the second half of 2025.
Amazon’s capital expenditures in the last quarter of 2024 totaled $26.3 billion, with the majority allocated to AI-related projects within its Amazon Web Services (AWS) division. Jassy indicated to analysts that this level of spending is “reasonably representative” of the investment the company plans to make in 2025.
AWS revenue experienced a 19% surge in the fourth quarter of 2024, reaching $28.8 billion. This marked the third consecutive quarter of 19% growth for the cloud unit. Operating income generated by AWS amounted to $10.6 billion, surpassing the average projection of $10.1 billion.
Despite the strong performance of AWS, analysts suggest that the company is facing similar capacity constraints as its competitors, Google and Microsoft.
Jassy’s warning about growth constraints within AWS overshadowed the company’s otherwise robust holiday quarter performance, indicating that its core e-commerce and logistics operations are effectively competing against rivals such as Walmart and emerging discount players like Temu and Shein.
Following the earnings announcement, Amazon’s shares experienced a decline of approximately 4% in extended trading.
The company’s guidance for operating income in the first quarter of 2025, ranging from $14 billion to $18 billion, fell short of analysts’ average projection of $18.2 billion. This shortfall can be attributed to several factors, including the impact of currency fluctuations and the absence of a leap year in 2025, which had boosted sales by approximately $1.5 billion in 2024.
Overall revenue in the holiday quarter increased by 10% to reach $187.8 billion, slightly exceeding analyst expectations. Operating profit stood at $21.2 billion, compared to the average estimate of $18.8 billion. Total operating expenses rose by 6.2% to $166.6 billion, marking the eighth consecutive quarter in which Amazon’s revenue growth outpaced its cost increases.
At the end of the quarter, Amazon employed over 1.55 million full-time and part-time workers, representing a 2% increase from the previous year.
The company’s aggressive investments in AI are expected to impact its profitability in the near term. However, Amazon remains committed to its long-term vision of becoming a dominant player in the AI market.
To address the current challenges and capitalize on the growing demand for AI services, Amazon will need to:
- Enhance its supply chain resilience to mitigate hardware shortages.
- Secure sustainable energy sources to power its expanding network of data centers.
- Demonstrate clear revenue growth from its AI investments to reassure investors.
In conclusion, while Amazon’s recent financial results highlight the company’s strong position in the market, its ability to overcome capacity constraints and capitalize on the immense potential of AI will be crucial for its future success. The company’s ongoing investments in infrastructure, chip development, and AI-powered services demonstrate its commitment to this vision. However, it will need to effectively manage the challenges related to hardware supply, energy consumption, and profitability to solidify its leadership in the rapidly evolving AI landscape.
