According to CEO Jassy, Amazon Web Services’s ability to launch additional data centers is being constrained by the supply of processors, both from outside vendors and Amazon’s own chip design unit, as well as power capacity.
Despite plans to invest almost $100 billion this year, with the majority of that money going towards data centers, in-house chips, and other equipment to provide artificial intelligence services, Amazon.com Inc. cautioned investors that it may encounter capacity issues in its cloud computing segment.
Andy Jassy, the CEO, is investing heavily to maintain Amazon’s leadership in cloud computing services because he is adamant about the company becoming an AI supermarket. However, he cautioned that development would be “lumpy” and alluded to potential capacity problems for Amazon brought on by hardware delivery delays and inadequate electricity.
On a conference call Thursday following the release of fourth-quarter earnings, Jassy stated, “It is true that we could be growing faster were it not for some of the constraints on capacity.”
The worries are similar to those of rival Microsoft Corp., which claimed last week that its lack of data centers hindered its development in cloud sales due to demand for its AI technologies.
According to Jassy, Amazon Web Services’s ability to launch additional data centers is being constrained by the supply of processors, both from outside vendors and Amazon’s own chip design unit, as well as power capacity. According to him, the restrictions would probably loosen in the second half of 2025.
The great majority of Amazon’s $26.3 billion in capital expenditures during the final three months of 2024 were allocated to AWS AI programs. During the call, Jassy informed analysts that the sum was “reasonably representative” of the rate of expenditures the business anticipated making in 2025.
According to the firm, AWS sales increased by 19% to $28.8 billion for the quarter that concluded on December 31. The cloud unit grew by 19% for the third consecutive period. The unit’s operating income is above the average expectation of $10.1 billion, coming in at $10.6 billion.
According to Sky Canaves, an analyst at Emarketer, “AWS growth did not accelerate as anticipated and instead matched Q3 levels, indicating that the company is challenged by the same types of capacity constraints facing rivals Google and Microsoft.”
Jassy’s caution about AWS’s growth limitations overshadowed a rather successful holiday quarter, indicating that the company’s core logistics and e-commerce division is battling off competition from Temu and Shein, as well as Walmart Inc.
The shares closed at $238.83 in New York and fell around 4% in extended trading. Following a 44% surge in 2024, the stock has increased 8.9% so far this year.
Profits will probably suffer as a result of the AI race. According to a statement from the Seattle-based business, operating profits for the quarter ending in March will range from $14 billion to $18 billion. Based on data provided by Bloomberg, analysts anticipated $18.2 billion on average. Compared to an average expectation of $158.6 billion, first-quarter sales could reach $155.5 billion.
Although Amazon had a good quarter overall, Gil Luria, an analyst at DA Davidson & Co., stated that “investors’ immediate concerns are around Q1 guidance, which was below expectations, mostly because of the impact of a big currency drag and the impact of lapping a leap year.” According to the corporation, the additional day in the 2024 quarter increased sales by around $1.5 billion.
The holiday quarter saw a 10% increase in total revenue to $187.8 billion, which was marginally higher than analyst projections. In contrast to the consensus expectation of $18.8 billion, operating profit was $21.2 billion.
For the seventh consecutive quarter, Amazon’s revenue grew faster than its costs, with total operating expenses rising 6.2% to $166.6 billion. At the conclusion of the quarter, the company had around 1.55 million full- and part-time employees, a 2% rise over the same period last year.
