Amazon’s shares experienced a significant downturn in after-hours trading on Thursday, following the e-commerce giant’s announcement of a substantial $200 billion capital expenditure plan for the current year. This aggressive investment forecast overshadowed an otherwise robust final quarter of 2025, with management’s profit projections for the immediate quarter falling short of analyst expectations.
Despite the market’s reaction, Amazon reported impressive fourth-quarter 2025 results. Revenue climbed 14% year-over-year to $213.39 billion, exceeding LSEG’s compiled estimates of $211.33 billion. Generally Accepted Accounting Principles (GAAP) earnings per share saw a modest 5% increase to $1.95, narrowly missing the $1.97 consensus estimate. Operating income also showed strength, rising 18% year-over-year to $24.97 billion, surpassing the $24.77 billion forecast. It’s worth noting that Amazon’s operating income was impacted by approximately $2.4 billion in special charges.
The company’s core strength lies not only in its dominant online retail presence but also in its rapidly expanding cloud computing division, Amazon Web Services (AWS), and its high-margin advertising business. Amazon’s extensive investment in its e-commerce logistics infrastructure solidifies its position as a leader in online retail, while the Prime membership program continues to drive customer loyalty through a compelling bundle of benefits including free shipping and video streaming. Competitors in this space include Walmart, Target, Microsoft, and Alphabet.
**AWS Continues Its Growth Trajectory**
The market’s concern appears to stem from Amazon’s ambitious capital expenditure forecast. While analysts had anticipated around $150 billion, Amazon’s $200 billion plan has raised questions about the timeline for monetizing these investments and their impact on profitability. This stands in contrast to other “Magnificent Seven” companies like Meta Platforms and Alphabet, which also announced increased investments this earnings season but seemingly received a more favorable market reception.
The discrepancy in market reaction might be attributed to the accompanying guidance. While Amazon’s capital expenditure plans are substantial, the projected revenue and profit growth for the first quarter of 2026 did not immediately signal a commensurate upside to justify such a significant increase in spending. Investors are looking for a clear line of sight to how these massive investments will translate into tangible returns.
However, Amazon’s leadership remains confident. CEO Andy Jassy emphasized on the earnings call the company’s deep expertise in discerning demand signals within AWS and its proven ability to achieve strong returns on invested capital. This confidence is bolstered by AWS’s substantial backlog, which reached $244 billion by the end of the quarter, representing a 40% year-over-year increase and a 22% quarter-over-quarter rise. This backlog even surpasses Alphabet’s reported cloud backlog of $240 billion. Jassy specifically highlighted the strong demand for AWS, particularly for core and artificial intelligence workloads, stating that the business is “monetizing capacity as fast as we can install it.”
**Deep Dive into Business Segments and Financials**
Digging deeper into the Q4 2025 results:
* **Amazon Web Services (AWS):** Revenue surged by 23.6% year-over-year to $35.58 billion, comfortably beating estimates by approximately $514 million and representing the fastest growth rate in 13 quarters. Operating income and margins also showed positive signs. Despite a 190-basis point year-over-year decline in margins to 35.03% due to heavy investments, this figure still exceeded the consensus estimate of 33.98%. Jassy also revealed that AWS has achieved an annualized revenue run rate of $142 billion, with its custom chip business (including Graviton and Trainium) surpassing a $10 billion annual revenue run rate, growing at triple-digit percentages year-over-year. This strategic push into custom silicon mirrors efforts by other hyperscalers like Alphabet to reduce reliance on third-party providers like Nvidia, aiming for more cost-effective and available compute for AI workloads.
* **Other Business Segments:** Strong revenue beats were observed in Online Stores, Subscription Services, Advertising Services, and the “Other” category, which encompasses diverse businesses like healthcare and co-branded credit cards. Only Physical Stores and Third-Party Seller Services fell short of consensus forecasts.
* **Geographic Performance:** North America sales saw a 10% increase to $127.08 billion, though they missed consensus estimates by $149 million. Operating margin in North America expanded by 102 basis points year-over-year to 9.03%, exceeding expectations. The International segment reported 17% year-over-year revenue growth, surpassing estimates. However, reported operating margins contracted by 98 basis points to 2.05%, missing expectations. This contraction was significantly influenced by $1.1 billion in special charges, without which operating margins would have shown year-over-year expansion.
**Capital Expenditures and Future Outlook**
Amazon’s capital expenditures in Q4 2025 were approximately $39.5 billion, exceeding the $35 billion consensus. For the full year 2025, the company invested $128 billion. The projected $200 billion capex for 2026 significantly outpaces the $146.6 billion expected by analysts and is higher than the guidance provided by Alphabet ($175 billion-$185 billion) and Meta ($115 billion-$135 billion). Jassy articulated this aggressive spending as a strategic response to “strong demand for our existing offerings and seminal opportunities like AI, chips, robotics, and low-earth-orbit satellites,” with an expectation of strong long-term returns on invested capital.
**Guidance and Market Sentiment**
Amazon’s guidance for the first quarter of 2026 presented a mixed picture. Net sales are projected to grow between 11% and 15% year-over-year, reaching $173.5 billion to $178.5 billion, with the midpoint of $176 billion slightly beating the consensus estimate of $175.6 billion. However, first-quarter operating income is forecasted to be between $16 billion and $21.5 billion, with the midpoint of $18.75 billion representing a notable miss against the $22.18 billion consensus. This miss was partly attributed to an expected $1 billion increase in year-over-year costs related to Project Kuiper, Amazon’s satellite broadband initiative.
While Amazon has a history of under-promising and over-delivering, the current market environment, which is punishing technology stocks, appears to be limiting its ability to gain the benefit of the doubt. The significant post-earnings stock drop, which saw shares trading at levels last seen in May 2025, underscores the market’s current impatience with aggressive investment strategies, even when backed by strong underlying demand signals and a compelling long-term vision. Despite the short-term volatility, a long-term perspective suggests that Amazon’s strategic investments, particularly in cloud infrastructure and AI, are poised to drive substantial future growth.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/17115.html
